Kill the Goose that Lays the Golden Eggs? Is There an Alternative Remedy to Dissolution in Oppression Cases?

Thursday, November 30th, 2023

A New Path for Appellate Lawyers

Last year, the jurisdiction of the Court of Appeals of Virginia was expanded to offer aggrieved litigants in civil cases an automatic right of appeal. Va. Code § 17.1-405(A)(3).^[1] That change offers opportunities for the Court to provide guidance to circuit courts and litigants in many areas of law that are unsettled, under-developed, or otherwise unclear. This is particularly true of corporate law under the Virginia Stock Corporation Act, an area in which decisions by the Supreme Court of Virginia have been few and far between over the past few decades, despite significant statutory changes over the years. This article discusses one of those open issues – the scope of relief available in a shareholder oppression case brought under the judicial dissolution statute of the Act, Virginia Code § 13.1-747. With oppression cases on the rise, the Court of Appeals should have the occasion to decide the question.

An Undeveloped Issue in Virginia Corporate Law

In an oppression case, a minority owner typically alleges that the majority owner(s) have attempted to “freeze” or “squeeze” him out of the business or suppress his rights.^[2] Code § 13.1-747 provides at least one potential remedy in such circumstances. The circuit court, in the exercise of its equitable authority, “may dissolve a corporation” when a shareholder establishes that “the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent[.]” Va. Code § 13.1-747(A)(1)(b) (emphasis added). The Supreme Court of Virginia has held that the statute is remedial and intended to protect the rights of corporate stockholders – particularly minority owners. Baylor v. Beverly Book Co., 216 Va. 22, 24, 216 S.E.2d 18, 19 (1975).

Code § 13.1-747 is the successor statute to Virginia Code § 13.1-94, which stated, in relevant part, that “[a]ny court of record, with general equity jurisdiction . . . shall have full power to liquidate the assets and business of the corporation” in an action by a stockholder where oppression is established. Va. Code § 13.1-94(a)(2) (repealed) (emphasis added). The statute also provided a limited alternative to dissolution in an oppression case: to place the corporation into receivership until the management authority of the corporation has either been restored to the original board of directors or a new board is elected.

In the cases of Giannotti v. Hamway and White v. Perkins, the Supreme Court of Virginia interpreted Virginia Code § 13.1-94 as providing the exclusive remedies to an oppressed minority shareholder, and did “not permit the trial court to fashion other, apparently equitable remedies.” Giannotti, 239 Va. at 28, 387 S.E.2d at 733; White, 213 Va. at 135, 189 S.E.2d at 320. However, the Supreme Court also described the circuit court’s authority to order dissolution as “discretionary” – presumably because the court could choose the alternative remedy of receivership. 239 Va. at 28, 387 S.E.2d at 733. Also seemingly key to the Supreme Court’s analysis was the strong language in the Code § 13.1-94, which vested the circuit court with “full power” to liquidate a corporation where oppressive conduct was established.

In 1985, the General Assembly rewrote the Virginia Stock Corporation Act. Jordon v. Bowman Apple Prods. Co., 728 F. Supp. 409, 414 n.7 (W.D. Va. 1990) (noting the overhaul of the statute).^[3] The phrase “full power to liquidate” in Code § 13.1-94 was changed to “may dissolve” in § 13.1-747(A) today.^[4] Meanwhile, the “full power” language was incorporated into a new subsection (B) of § 13.1-747 – a provision that does not relate to oppressive conduct.^[5]

Additionally, the General Assembly omitted the alternative remedy of temporary receivership from § 13.1-747. Virginia Code § 13.1-747(F) now provides only a single alternative to dissolution in an oppression/dissolution case: the other shareholders may elect to purchase the shares of the dissenting minority.^[6] See Va. Code § 13.1-749.1.

The Supreme Court of Virginia has not interpreted and applied § 13.1-747(A) since the comprehensive changes in 1985. In the absence of additional guidance, at least two lower courts in Virginia have followed the holdings in White and Giannotti under the prior Code section. See Jordon, 728 F. Supp. at 415 (applying White to a § 13.1-747(A) claim); Colgate v. Disthene Group, Inc., 85 Va. Cir. 286, 292 (Buckingham County, 2012) (same).

The Question for the Court of Appeals

This begs the question: is a circuit court powerless to consider and issue any other equitable remedy in lieu of dissolution in an oppression case? Code § 13.1-747(A) provides that the circuit court “may” dissolve a corporation when shareholder oppression is established, and the Supreme Court has further stated that the issuance of such relief is “discretionary.” Giannotti, 239 Va. at 28, 387 S.E.2d at 733. In this regard, the Supreme Court of Virginia has instructed circuit courts to “be reluctant to order the liquidation of a functioning corporation at the instance of minority stockholders.” Id. Indeed, often “[t]o liquidate the corporation is to kill the goose that laid the golden egg.” Giannotti, 239 Va. at 30, 387 S.E.2d at 734 (Gordon, Ret. J., dissenting). Accordingly, it is conceivable under the current statute for a circuit court to find oppression but decline to order dissolution, thus leaving an oppressed minority shareholder essentially without recourse.^[7] Conversely, a circuit court may feel compelled to dissolve a going concern to ensure that an oppressed plaintiff is provide some remedy.

These scenarios, along with the substantial rewriting of the Act in 1985, would seem to suggest that the circuit court’s power is not as curtailed as it was under the prior scheme, but rather allows the court discretion to award some form of equitable relief in lieu of dissolution. These possible remedies might include: (1) appointing a receiver; (2) appointing provisional directors; (3) requiring the issuance of dividends or distributions; and/or (4) requiring the corporation or the majority stockholder(s) to purchase the minority shareholder’s stock at a particular price. See, e.g., Masinter v. WEBCO Co., 164 W. Va. 241, 254 n. 12, 262 S.E.2d 433, 441 (1980) (listing “possible forms of relief against oppressive conduct short of outright dissolution”).

An Opportunity for the Court of Appeals

Historically, the “chancellor” was vested with broad authority to “do equity” in light of the facts and circumstances presented by a particular case. In corporate dissolution/oppression cases, the Supreme Court had previously determined that such power was curtailed by Code § 13.1-94. However, the substantial changes to the Act in 1985, the absence of appellate direction under the present Act, and few lower court decisions in the arena leave open the possibility that a circuit court presiding over an oppression/dissolution case maintains some authority to issue equitable relief that is short of completely dissolving the corporation. The Court of Appeals’ expansion should afford the Court the opportunity to reach this issue and provide critical direction to the circuit courts deciding such cases.

So stay tuned and contact our appellate lawyers for additional guidance on this and other appellate issues as the Court of Appeals of Virginia continues to exercise its expanded jurisdiction and develop existing law.

^[1] There are limited exceptions not material to this article. See Va. Code § 17.1-406.1(B).
^[2] The Supreme Court of Virginia has defined “oppressive” conduct to mean action “by corporate managers toward stockholders which departs from the standards of fair dealing and violates the principles of fair play on which persons who entrust their funds to a corporation are entitled to rely.” Giannotti v. Hamway, 239 Va. 14, 23, 387 S.E.2d 725, 730 (1990); accord White v. Perkins, 213 Va. 129, 134, 189 S.E.2d 315, 320 (1972).
^[3] Code § 13.1-747 took effect in January, 1986. While Giannotti was decided in 1990, the case was initially filed in 1980 when the prior Code § 13.1-94 was still in effect. 239 Va. at 16, 387 S.E.2d at 726. Accordingly, the Supreme Court of Virginia applied Code § 13.1-94 in that case. Id.
^[4] This language was adopted from the judicial dissolution provisions in §§ 14.30 and 14.31 of the Model Business Corporation Act.
^[5] Subsection B provides, in relevant part, that “[t]he circuit court . . . shall have full power to liquidate the assets and business of the corporation at any time after the termination of corporate existence, pursuant to the provisions of this article upon the application of any person, for good cause, with regard to any assets or business that may remain[.]” Virginia Code § 13.1-747(B).
^[6] Subsection F was added to § 13.1-747 in 2019.
^[7] While a shareholder may file suit under the derivative sections of the Stock Corporation Act, see, e.g., Va. Code § 13.1-672.1, a derivative action is brought to vindicate the rights of the corporation, not those of an individual shareholder.

Transportation Freight Brokers: Argue F4A Preemption but Take Additional Precautions

Monday, November 27th, 2023

When a roadway accident occurs during the shipment of goods, each party involved in the logistics chain can face varying levels of exposure for resulting injuries and damages. Freight brokers know there can be multiple parties in this chain. With increasing frequency, aggrieved parties are filing lawsuits against the shipper, freight broker, motor carrier, and driver. In transportation casualty defense, long gone are the days of two party litigation.

As the middle man in the chain, the freight broker does not transport property or take possession of property.[1] It simply arranges for transportation of the shipper’s goods by a motor carrier. In recent years, freight brokers have increasingly found themselves the target of lawsuits despite their limited connection to the shipment.[2] This is largely because motor carriers are required to have only $750,000 in available insurance coverage. Injured parties naturally want to expand the universe of coverage to increase their recovery potential. So, they add in the freight broker.  If coverage is still not enough, they add in the shipper.

These claims are typically flimsy, but that does not stop the defense costs from adding up. To further complicate broker claims, courts have been all over the place in the application of the express preemption provision of the Federal Aviation Administration Authorization Act (F4A).[3] Recently, a series of key decisions in the 9^th, 11^th, and 7^th Circuits offer some clarity on F4A preemption of claims against brokers.

By way of background, F4A was enacted in 1994 by Congress as the culmination of a push to deregulate interstate commerce – in particular the commercial transportation industries. This movement began with the Airline Deregulation Act of 1978. In 1980, Congress extended deregulation to the trucking industry through the Motor Carrier Act.[4] F4A ultimately operates to synthesize all the deregulation of that era into one place (which is how the brokerage industry wound up with one of its most important code sections tucked away in an Act with “Aviation” in the title).

The two key provisions of F4A are found under 49 U.S.C. § 14501(c).  First, § 14501(c)(1) – the preemption provision, which states (with emphasis added):

(1) General Rule.—Except as provided in paragraphs (2) and (3), a State, political subdivision of a State, or political authority of 2 or more States may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier (other than a carrier affiliated with a direct air carrier covered by section 41713(b)(4)) or any motor private carrier, broker, or freight forwarder with respect to the transportation of property.

The second key provision, § 14501(c)(2), is a safety exception (emphasis added):

(2) Matters not covered.—Paragraph (1)—

(A) shall not restrict the safety regulatory authority of a State with respect to motor vehicles, the authority of a State to impose highway route controls or limitations based on the size or weight of the motor vehicle or the hazardous nature of the cargo, or the authority of a State to regulate motor carriers with regard to minimum amounts of financial responsibility relating to insurance requirements and self-insurance authorization[.]

As the recent cases show, there is general agreement on what sorts of claims might be preempted under the general preemption provision. The major disputes center around what falls within the safety exception.

Miller, Aspen, and Ye – the Current State-of-Play

In Miller v. C.H. Robinson Worldwide, Inc., 976 F.3d 1016 (9^th Cir., 2020), the Ninth Circuit Court of Appeals considered whether F4A preempted the plaintiff’s negligent selection claims against a broker. The plaintiff sustained injuries in a tractor-trailer accident and sued the freight broker, C.H. Robinson for negligently selecting an unsafe motor carrier.[5] The court held that because the plaintiff’s claims directly challenged a “core service” of the broker—selecting the motor carrier—that the claim was related to broker services and thus preempted.[6] However, despite holding that F4A preempts negligent selection claims against a broker, the court went on to hold first that, in enacting the exception, Congress intended to preserve the States’ broad power over safety, which included the ability to regulate conduct not only through legislative and administrative enactments, but also through common law damages; and then that the plaintiff’s claim also had the requisite “connection with” motor vehicles because it arose out of a motor vehicle accident.  Thus, the plaintiff’s claim was saved from preemption by the safety exception.

In Aspen Am. Ins. Co. v. Landstar Ranger, Inc., 65 F.4th 1261 (11^th Cir., 2023), the Eleventh Circuit Court of Appeals considered whether F4A preempted negligent selection claims by a shipper’s insurance company against a broker (Landstar) who unknowingly hired a scam motor carrier company who stole the shipper’s product. The insurer covering the shipment (Aspen American) sued Landstar, claiming it was negligent in its selection of the scammer. Like the Miller court, the Aspen court also held that negligent selection claims relate to the broker’s arranging for transportation—a “core service” of the broker—thus preempting such claims.[7] Importantly, the Eleventh Circuit held that the F4A safety exception—which states that the preemption provision “shall not restrict the safety regulatory authority of a State with respect to motor vehicles,” was inapplicable to negligence claims against a broker. The logic behind this holding is important as it can be used in not just a stolen goods claim, but also applied in the personal injury context—the court specifically reasoned that an indirect connection to motor vehicles (here, hiring/selecting a motor carrier) does not render the activity “with respect to motor vehicles” for the purposes of the safety exception.[8]

One of the latest[9], and most thorough, decisions on the application of F4A preemption and the safety exception is Ying Ye v. GlobalTranz Enters., 74 F.4th 453 (7^th Cir., 2023), in which the Seventh Circuit Court of Appeals considered whether F4A preempted a plaintiff’s negligent hiring claims against a broker in the context of a common law wrongful death claim. GlobalTranz hired Global Sunrise, a motor carrier, to provide shipping services. The Global Sunrise truck collided with Mr. Lin, Ying Ye’s husband, causing his death and giving rise to the underlying lawsuit. Ye asserted GlobalTranz was negligent in selecting Global Sunrise because it knew, or should have known, that Global Sunrise was an unsafe company with a history of hours of service and unsafe driving violations. Ye also alleged that GlobalTranz exercised sufficient control over Global Sunrise such that it was vicariously liable for the negligence of Global Sunrise and its driver.

In its preemption analysis, the Seventh Circuit used a two-part test to determine whether preemption applied: (1) did the negligent hiring claim arise under a state law or regulation, and (2) did the law have an economic effect on the rates, routes, or services of the broker. Based on those factors, the court held that common law negligence claims fall “comfortably” within the “law or regulation” language of the preemption statute.[10] The court observed that “enforcement of such a claim . . . would have a significant economic effect on broker services [because it would] impose . . . a new and clear duty of care on brokers.”[11] In analyzing whether the safety exception applied, the court followed the Aspen court’s lead in holding that a common law negligence claim enforced against a broker is not a law that is “with respect to motor vehicles.”[12]

“Core service of the broker” seems to be the magic words in determining whether F4A preemption applies in a case. All three of the circuits who have looked at the issue agree that the act of hiring, selecting, or otherwise retaining a motor carrier lies at the core of the broker’s services; claims arising out of those activities (i.e., negligent hiring, retention, selection, etc.) are thus preempted by § 14501(c)(1). It then becomes a circuit-level, district-level, or even judge-level determination as to whether a plaintiff’s claims in a given case are subject to the safety exception (§ 14501(c)(2)) so as to pull them from the jaws of preemption.

The winning arguments on the defense side are set out in Aspen and Ye and generally focus on how attenuated the “with respect to motor vehicles” language is compared to what brokers actually do (e.g., there is no direct link between negligent hiring claims against brokers and motor vehicle safety). Indeed, the Federal Motor Carrier Safety Regulations place the onus of motor vehicle safety squarely on the motor carrier and the driver.[13]

Best Practices, Indemnity Agreements, and Additional Insurance Coverage as Added Protection

In the face of an uncertain preemption defense, brokers should implement policies and procedures to protect against the merits of third party claims. To limit exposure under the vicarious liability theory, brokers should be careful not to exert control over the retained motor carrier’s conduct.  Doing so, can label a broker a de facto motor carrier. Whether a broker can be liable as a motor carrier depends on the specific circumstances of the transportation arrangement at issue. The Third Circuit Court of Appeals adopted a 4-part. This test asks (1) whether the broker promised to personally perform the transport and therefore legally bound itself to transport; (2) the type of services the broker offers; (3) whether the broker held itself out to the public as the actual transporter of goods; and (4) whether the broker’s only role was to secure a third party to ship the goods.^[14] This test is simply one approach. The key takeaway is for brokers to let motor carriers do their job and transport the cargo without much restraint. Doing so necessitates that brokers retain reliable motor carriers.

In order to defend against negligent hiring claims, brokers need to ensure that the motor carriers they select have a Satisfactory safety rating with the Department of Transportation. Brokers should avoid hiring motor carriers with Conditional or Unsatisfactory ratings and maintain a system to determine if an approved carrier’s rating changes. If the carrier is unrated, as most carriers are, the broker should conduct a thorough investigation of the carrier’s safety history and document the carrier file.

Unfortunately, maintaining all of these checks and balances can still result in a lawsuit. In order to escape oppressive litigation costs involved in defending these multi-party lawsuits, brokers need to utilize indemnity agreements. The broker should require the motor carrier to defend, hold harmless, and indemnify the broker (and its shipping customer) against any and all liability, claims, and damages to persons or property arising out of the motor carrier’s operation.

An indemnity agreement is a contractual provision in which one party (the indemnitor) agrees to pay for or protect the other party (the indemnitee) from certain losses or damages. Indemnity provisions are typically interpreted under general principles of contract construction, meaning courts seek to ascertain and give effect to the intentions of the parties. To do this, courts examine the entire contract, the language used in the indemnity provision, the objectives of the parties, and the circumstances under which the contract was entered.

Generally, there are three forms of indemnity agreements: limited, intermediate, and broad. In a limited indemnity agreement, the indemnitor agrees to indemnify the indemnitee for the indemnitor’s own negligence. All states allow limited indemnity provisions. In an intermediate indemnity agreement, the indemnitor agrees to indemnify the indemnitee for the concurrent negligence of both parties. There are two types of intermediate indemnity: (1) full indemnity, where the indemnitor agrees to indemnify the indemnitee for all loss when both parties are at fault. This allows an indemnitor who is 1% at fault to indemnify an indemnitee who is 99% at fault; and (2) partial indemnity, where the indemnitor agrees to indemnify the indemnitee only for loss attributable to the indemnitor itself; the indemnitor’s obligation is capped at its percentage of negligence.

In a broad indemnity agreement, the indemnitor agrees to indemnify the indemnitee for all liabilities regardless of whether the liability is solely attributable to the indemnitee. It provides the most protection to an indemnitee because the indemnitor assumes the entire risk. But note, gross negligence or willful misconduct of the indemnitee will generally relieve the indemnitor of its obligation. On public policy grounds, courts do not favor indemnity agreements that relieve the indemnitee from liability for its own negligence. As such, a majority of states have enacted motor carrier transportation anti-indemnity laws prohibiting overly broad provisions.[15]

These statutes take one of two forms: (1) they prohibit requirements in indemnification agreements where the motor carrier must indemnify the non-motor carrier (shipper or broker) for liability arising out of the non-motor carrier’s negligent or intentional acts[16]; or (2) they prohibit indemnification provisions in motor carrier contracts that have the effect of indemnifying an indemnitee for the indemnitee’s negligent or intentional acts.[17] However, a small number of states limit indemnification for either party in both directions.[18] Many states do not differentiate between gross negligence and negligence, so it is important to follow state law when making these distinctions.

Indemnification agreements are important, but an indemnity agreement with a motor carrier who cannot afford to support the broker’s defense is not worth much more than the paper it is written on. Therefore, brokers should require motor carriers to list the broker as an additional insured under the motor carrier’s applicable insurance policy. It is important for brokers to check that all additional insured contractual provisions are actually being satisfied. Doing so will trigger the insurer’s duty to defend the broker in the event a claim is filed against it. This approach provides extra protection for a freight broker and is especially important when a broker enters into an indemnity agreement with a motor carrier of limited assets.

Understanding the limits and scope of indemnification agreements is essential to ensuring that such agreements are structured in a way that they will hold up if challenged. The additional insured inclusion can also accomplish the same goal, which is ultimately to keep brokers from paying expensive litigation costs when roped into claims against motor carriers based on the alleged negligence of the motor carrier.

Conclusion

F4A preemption is a powerful tool for transportation brokers to avoid costly personal injury or similar claims, however the law in this area is still unnervingly unsettled. So far the score is two circuits to one in favor of preemption of such claims, but it is still a crap shoot across most of the country. Until the law in the area is settled, brokers should take additional precautions. Hiring reputable motor carriers and trusting them to transport will go a long in protecting against broker claims. Indemnity and additional insured provisions in contracts with motor carriers can further save brokers the headache and expense of facing uncertain litigation.

Gentry Locke’s Trucking & Transportation Defense team understands the complex industry issues companies transporting cargo and people face. Gentry Locke is proud to counsel top-25 truckload carriers, freight brokers, family-owned trucking companies, shippers, and delivery service partners. Reach out to winsky@gentrylocke.com or miller@gentrylocke.com for any transportation-related needs.

[1] FMCSA Website, Types of Operating Authority | FMCSA (dot.gov) (last updated July 28, 2022); see also 49 CFR § 371.2(a)
[2] These claims generally take the form of negligent hiring/selection/retention, or vicarious liability (based on the argument that a freight broker is the “statutory employer” of the motor carrier and its driver).
[3] Specifically, 49 U.S.C. § 14501(c).
[4] See Dan’s City Used Cars v. Pelkey, 569 U.S. 251, 256 (2013) (discussing legislative history and application of preemption).
[5] Miller, 976 F.3d at 1020.
[6] Id. at 1023-25.
[7] Aspen Am. Ins., 65 F.4th at 1267.
[8] Id. at 1272.
[9] Since Ye¸ district courts in the 8th and 3rd Circuits followed Ye.  See, from the 8th Circuit, Girardeau v. Hobbs, 2023 U.S. Dist. LEXIS 146196 at *3-*5 (E.D. Mo., Aug. 21, 2023) (granting broker’s Motion to Dismiss negligent hiring/selection claim, finding Ye’s thorough reasoning highly persuasive, though still allowing a vicarious liability claim to go forward as the broker “performed actions beyond those typical of a mere broker”); see also from the 3rd Circuit, Lee v. Golf Transp. Inc., 2023 U.S. Dist. LEXIS 200143 (M.D. Pa., Nov. 7, 2023) (awarding summary judgment to broker defendant based on F4A preemption of plaintiff’s claims rooted in state law negligence, discussing and relying on Ye in determining that the plaintiff’s claims related to broker services and were thus preempted).
[10] Ying Ye, 74 F.4th 458-459.
[11] Id. at 459.
[12] Id. at 460.
[13] 49 CFR § 390.11; 49 CFR § 392, et seq.
[14] Tryg Ins. v. C.H. Robinson Worldwide, Inc., 2017 WL 5725057, at *6–7 (D.N.J. Nov. 28, 2017) aff’d, 767 Fed. App’x 284 (3rd Cir. 2019).
[15] State Anti-Indemnity Motor Transportation Statutes Update, SmithAmundsen LLC, State Anti-Indemnity Motor Transportation Statutes Update – Lexology (Dec. 11, 2015) (detailing anti-indemnity statutes enacted in 42 states). Since 2015, Ohio and New York have also adopted anti-indemnification provisions for transportation agreements.  See Ohio Rev. Code Ann. § 2305.52; N.Y. Gen. Bus. Law § 398-e.
[16] See State Anti-Indemnity Motor Transportation Statutes Update; see also Fla. Stat. Ann. § 316.302 ; Ga. Code Ann. § 40-1-113; 625 Ill. Comp. Stat. 5/18c-4105.
[17] See State Anti-Indemnity Motor Transportation Statutes Update; see also Conn. Gen. Stat. Ann. § 52-572x; Iowa Code Ann. § 325B.1; Kan. Stat. Ann. § 16-121; La. Stat. Ann. § 2780.1.
[18] See State Anti-Indemnity Motor Transportation Statutes Update; see also Ala. Code § 37-3-23.1; Ariz. Rev. Stat. Ann. § 44-1379.

Key Considerations for Your M&A Transaction

Monday, November 27th, 2023

Article originally published by Valley Business Front in Issue 168, September 2022: Valley Business FRONT, Issue 168, September 2022.

“A term sheet can be a relatively simple, non-binding description of the deal… [It] can set mutual expectations and help avoid disagreements.”

When considering a transaction to buy or sell a business, there are a number of issues to think about. The following considerations can help you maximize value, limit risk, and make your transaction run smoother:

1. Define your objective.

Whether you are buying or selling, you first need to determine what the objectives of your transaction are going to be. Do you want a controlling interest? Is this an opportunity to bring in minority investors and expand the business? Do you want to stay involved with the business after the transaction, or is it time to ride off into the sunset? Defining the objective of your transaction will help you determine how to get started.

2. Build the right team around you.

Based on your objectives, and the size and complexity of your transaction, you will need different advisors to help guide you through the process.

Investment Banker. Investment bankers can help buyers locate new acquisitions or help sellers determine the value of a business and to cast a broad net for potential buyers. Investment bankers can also stay involved throughout the process to help you negotiate the deal and work through various requests from the other party.

Lawyer. Finding the right legal counsel is necessary regardless of the size of your transaction. Experienced legal counsel will guide you through the transaction with advice concerning the structure, risks or obligations, as well as, prepare, negotiate, and revise the documents that will be required to close your transaction. Your legal counsel should work closely with any other advisors working on your behalf, and the other counterparty’s lawyers and advisors to facilitate a transaction that achieves your objectives.

Accountant and Financial Advisor. You will want to make sure that your CPA or other accounting or financial advisors who have historically helped you are involved in the transaction. If necessary, you may need the advice of specialists with experience in transactions. These advisors, working with your lawyers, can provide advice on the financial and tax implications that may not be obvious when you first think about the structure of the transaction.

3. Find the right counterparty.

Unless your objective is to sell the business and walk away, there is a good chance you will be working with the other party in the transaction for some period of time after the transaction is done. Particularly when selling your business to a private equity group, the buyer will probably want key management to stay involved in the business, at least for a period of time, and for the seller to invest or rollover money into the business after closing. Although the purchase price is an important factor, you should think about who you, and possibly your employees, are going to be in business with after the transaction closes.

4. Prepare a Term Sheet.

A term sheet can be a relatively simple, non-binding description of the deal terms. When done correctly and upfront, term sheets can set mutual expectations and help avoid disagreements that may derail a transaction.

5. Ask about insurance.

Existing insurance policies and specialized transaction related insurance products are available to buyers and sellers to help mitigate risks. Many significant transactions now include representations and warranties insurance to shift potential liabilities of the seller to the insurance company. Ask your advisors about all available types of insurance.

6. Decide who will be “under the tent” for the transaction.

Getting to closing can often take several months. During that time, you should be careful as to what you reveal about the transaction. Buyers are interested in the business for its potential, but without current disruption. If too many people find out about the deal while it’s still in the negotiation phase, that could create disruption within the business, which could negatively impact your negotiating position.

7. Will others receive compensation?

Buyers and sellers may want to reward certain employees who either (or both) provide support throughout the transaction (in addition to performing their normal day-to-day job) or who have dedicated their time and efforts to the business in a way that has made selling the business a possibility. If planned carefully, there are ways to structure these payments in a tax efficient manner.

8. Stay Involved!

Any lengthy transaction will involve some sort of “deal fatigue” on the part of the principals of the buyer and seller. It is extremely important, however, to say engaged with the team that you have created and be responsive regarding the decisions and information they will need from you.

If you have any questions about your transaction, please reach out to Jon Puvak at puvak@gentrylocke.com or Ben Law at blaw@gentrylocke.com.

Local Counsel Can Help Prevent You From Being Vinny Gambini’d

Tuesday, November 14th, 2023

“My Cousin Vinny” is a 1992 comedy film that follows Bill and Stan, two college students who are mistakenly accused of murder while traveling in Alabama. Bill’s cousin, Vinny Gambini, a brash and inexperienced lawyer from New York, comes to their aid. The film humorously explores Vinny’s fish-out-of-water experiences in the Southern legal system as he attempts to defend the two young men. Throughout the movie, Vinny faces various challenges, misunderstandings, and clashes with the local legal community. The film is known for its comedic elements, courtroom drama, and the dynamic performance of Joe Pesci as Vinny. Funny bits? It had a few:

• “Next time you come into my courtroom, you will look lawyerly. And I mean you comb your hair and wear a suit and tie. And that suit better be made out of some kind of cloth.” Judge Chamberlain Haller to Vinny.
• “When you’re addressing this court, you will rise… and speak to me in a clear, intelligible voice.” Judge to Vinny.
• “Mr. Gambini, the next words out of your mouth better be ‘guilty’ or ‘not guilty.’ I don’t want to hear commentary, argument, or opinion. I don’t want to hear any facts or evidence. If I hear anything other than ‘guilty’ or ‘not guilty’, you’ll be in contempt.” Judge to Vinny.
• “Didn’t I tell you that the next time you appear in my courtroom that you dress appropriately.” Judge to Vinny.  “You were serious about that.”  Vinny to the Judge Haller.
• “So, it’s either wear the leather jacket, which I know you have, or this, So, I wore this ridiculous thing for you.” Vinny to the Judge.

Each one of these humorous quotes highlights something lawyers know. There are many rules, customs, and practices – written and unwritten – in each court and for each judge. Hiring local counsel or local counsel to supplement national counsel prevents you from starting from behind.

Hiring local counsel can be advantageous for various reasons, depending on the specific legal context and requirements of a case. Here are some common considerations:

Understanding of Local Laws and Regulations and Local Practices and Procedures

Local counsel is familiar with the specific laws and regulations of the jurisdiction where the legal issue arises. This knowledge is crucial because laws can vary significantly among jurisdictions. And, as in the case of Vinny and Judge Haller, each jurisdiction may have its own customary practices and procedures. Local counsel can provide guidance on local etiquette, filing procedures, and unwritten rules that may not be immediately apparent to an attorney from outside the area.

Courtroom Experience

Local counsel has experience practicing in local courts, which can be beneficial in navigating the legal system efficiently.

Relationships with Local Judges and Attorneys

Local counsel likely has established relationships with judges, court staff, and other attorneys in the area, which can contribute to a smoother legal process, potentially influencing how your case is perceived and managed.

Cost Efficiency

Hiring local counsel can be more cost-effective. Local attorneys can reduce the time and resources needed to get up to speed on local issues and rules. They are also on the spot. So, having local counsel can save on travel expenses and time, especially if frequent court appearances or meetings are required.

Local Perspective and Community and Cultural Understanding

Local counsel understands the local community dynamics, which can be important in cases involving community-specific issues or when dealing with local stakeholders. These insights can be valuable in crafting legal strategies that resonate with the local context. Local counsel is more likely to understand the cultural nuances of the community, which can be essential in cases involving cultural or social considerations.

License to Practice

Legal requirements for practicing law can vary by jurisdiction. Hiring local counsel ensures that the attorney is licensed to practice in the specific jurisdiction where the case is being heard.

In many legal situations, a combination of local and non-local counsel may be beneficial, allowing for a comprehensive approach that leverages both local expertise and broader legal perspectives.

So don’t be Vinny Gambini’d. Sure, in the end, Vinny secures the acquittal of Bill and Stan, while adding a touch of humor and charm to the legal proceedings. But that’s best left to the movies and not to your case.

How to Choose The Right Virginia Truck Accident Attorney for Your Case

Monday, November 13th, 2023

If you are looking for the best Virginia personal injury attorney for your case involving a trucking accident with a tractor trailer, the following five important considerations should be made:

1. Find an experienced Virginia trucking attorney who is also a licensed (CDL) truck driver. As you might imagine, there are very few.

Why is this so important?

Tractor trailers are extremely different than other motor vehicles. A typical car may weigh a couple thousand pounds and be 12’ long. A tractor trailer, on the other hand, weighs approximately 35,000 pounds empty and up to 80,000 pounds when fully loaded.

Your average car receives a yearly inspection – whereas a tractor trailer must be given a thorough pre-trip inspection every day. [1] These inspections are designed to prevent mechanical failure which can lead to catastrophic injuries and death.

A small passenger vehicle, or even a SUV, is no match for a fully loaded tractor trailer during a collision.

A Virginia personal injury attorney who is also licensed as a CDL truck driver has an in-depth understanding of not only the operation of the truck, but also the crucial pre-trip inspection – including knowing how to identify all of the key parts of a tractor and trailer ranging from the complex air brake system to the coupling devices between the tractor and the trailer.

Operation of a tractor trailer is in no way similar to operation of a standard passenger vehicle. A tractor trailer combination is approximately 70’ in length and 8’-9’ wide. Operating such massive vehicles requires special training and experience. When a collision occurs between a passenger vehicle and a tractor trailer, you want an attorney who understands and has experience with actually operating a tractor trailer and a passenger vehicle and has had experience investigating catastrophic collisions involving these vehicles.

At some point in any lawsuit against a trucking company, there will come a day when your Virginia personal injury attorney must depose (question) the truck driver and, perhaps, representatives of the trucking company. The deposition goes much different when the attorney is also a truck driver and speaks “the language” of the trucking industry.

2. Tractor trailer accident law is complex. It is imperative that you hire someone who understands the complexities of both federal and state law as it applies to tractor trailers.

If a crash occurs in Virginia, two bodies of law apply. First, the Federal Motor Carrier Safety Administration (FMCSA) regulates “all employers, employees, commercial motor vehicles and transport property or passengers interstate commerce.” [2]

A commercial motor vehicle includes any vehicle weighing 10,100 pounds or more. [3] The Code of Regulations defines interstate commerce as “trade, traffic or transportation in the United States – (1) between a place in a state and a place outside such state . . . ; (2) between two places in a state through another state or a place outside of the United States; or (3) between two places in a state as part of trade, traffic or transportation originating or terminating outside of the United States.” [4]

Although the FMCSA rules technically do not apply to commercial vehicles operating only within a single state (Virginia) and involving solely intrastate commerce, the Virginia Administrative Code incorporates the FMCSA rules by reference with a few slight modifications. [5] Therefore, the FMCSA rules apply to a commercial motor vehicle operating in interstate or intrastate commerce within or through the Commonwealth of Virginia.

In other words, one way or another the complex Code of Federal Regulation will have an impact on any tractor trailer crash in Virginia. Knowledge of these rules is imperative to a successful outcome.

3. It is crucial that a victim or his or her family locate an attorney/lawyer in a firm with sufficient size and resources to litigate against a large trucking company.

A tractor trailer company has the advantage in almost every aspect of a crash. First, the tractor trailer driver has likely received extensive training in what to do after a crash occurs. Within minutes, a telephone call will be made to dispatch which will then send out a “quick response” team of investigators, accident reconstructionist, insurance adjusters, and perhaps even attorneys. It is rare that any representative of the occupants of a passenger vehicle know enough to immediately summon the help of an experienced trucking lawyer. If such a contact is made, it is imperative that it is made to a firm with sufficient resources to immediately dispatch a quick response team who can:

1. Go to the scene of the crash;
2. Involve an experienced truck accident reconstructionist;
3. Preserve the evidence of the scene, vehicles, ;
4. Conduct inspections of the truck, trailer and any other vehicles involved; and
5. Send out a “preservation” letter to all of the potential defendants to make sure that no evidence is destroyed, altered or lost.

In other words, retaining the right attorney, with the right sized firm, will even the playing field between the trucking company and the victims or occupants of the other vehicles. The longer it takes for the victims to engage an attorney, the more risk there is that valuable evidence will be lost.

4. Hire an attorney/firm with extensive federal court experience.

Most tractor trailer accidents on a Virginia highway end up in federal court.

Cases between individuals who are residents of Virginia often litigate their claims in state court. Truck accidents often involve foreign corporations and out-of-state drivers. Consequently, there is very often “diversity” between the litigants. When this occurs, the case can be brought in federal court or removed there by the defendant even if a plaintiff files in state court. This can happen very quickly and the rules in federal court are much more strenuous and exacting than one would experience in state court.

Law firms like Gentry Locke have multiple attorneys who have extensive experience in federal court – including having clerked in federal courts at some point in their career. Knowing how to navigate the federal court system is as important as knowing how to operate a tractor trailer.

5. Hire an attorney/lawyer who is willing to let you interview a “real” past or present client who was involved in a complex tractor trailer crash.

There is a tremendous amount of knowledge to be gained by speaking with someone who had endured a lawsuit against a large corporation, such as a trucking company.

At Gentry Locke, we commonly connect our clients who have similar experiences and injuries. We have found this to be tremendously helpful to everyone in navigating what seem like an insurmountable mountain.

We also encourage our truck accident clients to reach out to the Truck Safety Coalition, which is literally composed of the prior victims of truck crashes and who are united to help guide the trucking industry toward safer rules and regulations.

Summary

Truck drivers are like any other profession. The vast majority of them are extremely professional, courteous and follow the rules and regulations of both federal and state law. However, it only takes one rogue truck driver or trucking company to destroy a family and/or its wage earner in an instant. Selecting the right attorney, in the right firm, and with the right resources will have a huge impact on the case. If you need a personal injury attorney, contact us.

[1] 49 C.F.R. § 396.13
[2] 49 C.F.R. § 390.3(a)
[3] 49 C.F.R. § 390.5.
[4] 49 C.F.R. § 390.5.
[5] See 49 C.F.R. § 390.3(a); see also 19VAC30-20-40

FTC Amends Safeguards Rule

Wednesday, November 8th, 2023

The Federal Trade Commission (FTC) announced on October 27th that it has expanded the scope of its financial data security rule, which will now require nonbank financial institutions – like vehicle dealers and mortgage brokers – to report data breaches. This new amendment to the FTC Safeguards Rule imposes similar reporting requirements to those already applicable to banks.

Specifically, the amendment will require nonbank financial institutions to report to the FTC any data breach affecting 500 or more consumers’ data. The rule gives financial institutions 30 days to report the breach, however the FTC encourages reporting as soon as possible. Importantly, the reporting requirement applies only to breaches of unencrypted data, underscoring the importance of implementing sound cybersecurity protocols like end-to-end encryption of data.

In his statement announcing the amended rules, Samuel Levine, the director of the FTC’s Bureau of Consumer Protection, emphasized the importance of corporate transparency and rapid disclosure of incidents, even before the 30 day timeline when possible. The new requirements will take effect in approximately six months, according to the FTC.

This new reporting requirement places a significant new burden on affected financial institutions, as reporting an incident to the FTC will trigger an investigation into the company’s cybersecurity practices and compliance with the Safeguards Rule. Failure to report an incident will put the offending company into the far more precarious position of being the subject of not only an FTC investigation, but also an enforcement action accompanied by hefty fines and the potential for criminal penalties.

In light of the massive financial and reputational risk posed by increasingly active threat actors and the government’s corresponding regulation of corporate cybersecurity, it has never been more important for companies to develop and implement robust cybersecurity and data privacy policies. It is equally crucial to consult with experienced legal counsel for assistance developing these proactive policies and, when necessary, responding to cyber incidents.

If you have any questions about this update, please reach out to John Danyluk at danyluk@gentrylocke.com.

AI Standing Orders Proliferate as Federal Courts Forge Own Paths

Wednesday, November 8th, 2023

Article originally published by Bloomberg Law: AI Standing Orders Proliferate as Federal Courts Forge Own Paths (bloomberglaw.com)

Reproduced with permission. Published Nov. 8, 2023. Copyright 2023 Bloomberg Industry Group 800-372-1033. For further use please visit https://www.bloombergindustry.com/copyright-and-usage-guidelines-copyright

Gentry Locke’s Jessiah Hulle surveys federal courts’ ever-expanding guidance on artificial intelligence, and finds that, for now, courts are experimenting with varied approaches to the new technology.

Federal courts nationwide are weighing in on how artificial intelligence can be used in court filings, and they’re exploring different approaches to address issues such as disclosure, accuracy, and ethical duties.

A comprehensive review of 196 federal court websites reveals that judges continue to release AI orders at a steady pace. So far, at least 14 federal courts have released official guidance on using AI tools in litigation.

These new orders also reveal a notable trend: Most courts personalize AI mandates rather than adopt guidelines verbatim from colleagues.

SEC Charges SolarWinds and Chief Information Security Officer with Fraud and Internal Cybersecurity Failures

Monday, November 6th, 2023

The Securities and Exchange Commission (SEC) announced charges against SolarWinds Corp. and its chief information security officer (CISO), accusing the publicly traded company of misleading investors as to its vulnerability to cyberattacks. SolarWinds is accused of defrauding investors by overstating its cybersecurity practices, while failing to implement appropriate internal digital safeguards and ignoring red flags for years before announcing that it was the victim of a two-year long cyber attack in December 2020.

This landmark lawsuit represents the first time in an SEC cyber case that the commission has alleged that an organization intended to deceive investors. Perhaps even more alarming for information security executives performing an increasingly difficult corporate function, it is the first time in an SEC cyber case that the commission has brought action against an individual.

The SEC alleged that SolarWinds and CISO Timothy Brown, who is individually named in the lawsuit, knew as early as 2018 that software it sold to the federal government was, in the words of one company engineer quoted in the complaint, “not very secure.” According to the complaint, SolarWinds’ poor security practices were not a secret within the company, prompting several employees to express their concerns.

According to the director of the SEC’s enforcement division, “[r]ather than address these vulnerabilities, SolarWinds and Brown engaged in a campaign to paint a false picture of the company’s cyber controls environment, thereby depriving investors of accurate material information.”

The SEC’s complaint, filed in the Southern District of New York, alleges that SolarWinds and Brown violated the antifraud provisions of the Securities Act of 1933 and of the Securities Exchange Act of 1934; SolarWinds violated reporting and internal controls provisions of the Exchange Act; and Brown aided and abetted the company’s violations. The complaint seeks permanent injunctive relief, disgorgement with prejudgment interest, civil penalties, and an officer and director bar against Brown.

The SEC’s aggressive enforcement of the massive SolarWinds breach reflects the tremendous impact that a breach can have to a company’s value and stock prices. Further, by placing the company’s CISO squarely in the SEC’s crosshairs, CISOs and other cyber executives are now on notice that they may be held personally responsible for security and disclosure failures. On the heels of the criminal sentencing of former Uber CSO, Joseph Sullivan, for his role in the company’s 2016 data breach, these executives are predicted to become increasingly risk-averse and choose self-preservation over corporate profits by proactively report vulnerabilities and breaches. The government’s willingness to go after individual employees means that those employees have even greater motivation to become whistleblowers and report perceived cybersecurity failures within the company, thereby protecting themselves while potentially securing a sizable relator settlement under the False Claims Act.

If you have any questions concerning your company’s cybersecurity, please reach out to John Danyluk at danyluk@gentrylocke.com.

Upheld Opinion in Gender Pay Bias Case – A Win for Gentry Locke’s Client

Monday, October 23rd, 2023

A favorable and unanimous opinion released on October 19, 2023 in the case of Ashley Nicole Noonan v. Consolidated Shoe Company, Inc. by the United States Court of Appeals for the Fourth Circuit, upheld a win for Gentry Locke’s client, Consolidated Shoe Company, Inc. The Plaintiff brought gender discrimination, Equal Pay Act, and retaliation claims against our client. Cate Jackson argued the case in the Western District of Virginia Court with assistance from Paul Klockenbrink and Amanda Morgan. Judge Moon granted summary judgment in Consolidated Shoe’s favor in November 2021. The Plaintiff appealed and the appeal was argued in January 2023 and was successfully handled by the head of Gentry Locke’s Appeals and Critical Issues practice, Monica T. Monday.

Read more about this case in this article published by Law360 here.

Update on New Legislation for Universal Licensing Recognition

Friday, September 15th, 2023

On March 9, 2023, Virginia Governor Glenn Younkin signed into law legislation (SB1213/HB2180) that directed the Department of Professional and Occupational Regulation (DPOR) to create Universal Licensing Recognition (ULR) for 85 occupations, including construction trades.

ULR applies to all individual licenses regulated by DPOR, except architects, engineers, land surveyors, and landscape architects. ULR does not apply to contractor licenses.

ULR does not mean that Virginia will automatically recognize an out of state individual’s license. The out of state individual must apply for a Virginia license before the person commences work in Virginia.

DPOR boards will grant licenses to out-of-state applicants who possess a license issued by another state, if:

• The applicant has held an equivalent license in another state for at least three years;
• The applicant is in good standing in all states where they were/are licensed;
• The applicant was required to pass a competency exam to obtain their original state license;
• The applicant met training standards to obtain their original state license; and
• The applicant pays all applicable Virginia licensing fees.

The new law took effect on July 1, 2023 and the DPOR has implemented new ULR procedures.