LEGAL ISSUES FOR AMCS AND THEIR CLIENTS

LEGAL ISSUES FOR AMCS LEGAL ISSUES FOR AMCS AND THEIR CLIENTSAND THEIR CLIENTS

C. Michael Deese

Howe & Hutton, Ltd.

Washington, DC

February 15, 2013

cmd@howehutton.com

AMC ISSUES TO BE AMC ISSUES TO BE ADDRESSEDADDRESSED

ACCREDITATION UPDATEEMPLOYEE HANDBOOK

“CONTRACTS”AVOIDING CLIENT TRANSITION

PROBLEMS– Incoming– Outgoing

CLIENT ISSUES TO BE CLIENT ISSUES TO BE ADDRESSEDADDRESSED

NONPROFIT CORPORATION LAW CHANGES

HANDLING DIRECTOR CONFLICTS OF INTEREST

USE AND MISUSE OF BOARD EXECUTIVE SESSION

CHAPTER RELATIONSHIPSANTITRUST DEVELOPMENTS

ACCREDITATION UPDATEACCREDITATION UPDATE

AMCI’s ANSI standard being revised– Canvass process almost complete

Changes could be effective by mid-year– Applies to new accreditation and

reaccreditation after effective date

ACCREDITATION UPDATEACCREDITATION UPDATE

Changes to the standard include:– 3.1: Written contract with clients required; not

just whenever feasible– 3.6: Client contract must address client and

AMC IP rights re materials and software systems

– 4.6: AMC must have a policy for advising clients regarding protection of client IP

ACCREDITATION UPDATEACCREDITATION UPDATE

Changes to the standard include:– 4.7: AMC must have written social media

policies for AMC and clients– 6.7: If AMC recommendation to client board

regarding CGL and APL insurance is declined, must be recorded in board minutes

– 10.6: AMC must disclose conflicts of interest regarding purchases with client funds

ACCREDITATION UPDATEACCREDITATION UPDATE

Changes to the standard include:– 11.1: Record retention policy specifically

applies to electronic records as well as hard copy documents

Not a change, but important:– 11.3: AMC must have written business

continuity plan (data back-up; communication plan; evacuation plan; alternate site)

ACCREDITATION UPDATEACCREDITATION UPDATE

AMCI Best Practices Document– Revised February 9, 2011– Goes well beyond ANSI Standard

Identifies substantive issues with which an AMC owner is expected to be familiar

Client relations; financial management; technology; human resources; legal; business leadership (running your AMC)

EMPLOYEE HANDBOOK EMPLOYEE HANDBOOK “CONTRACTS”“CONTRACTS”

December 2012 Illinois federal court decision– Employee handbook disclaimer (“handbook not

an enforceable contract, may be changed at any time by employer, etc.”) may not always be effective

– Handbook terms may be an enforceable “agreement,” even if not a contract, as long as in effect

AVOIDING TRANSITION AVOIDING TRANSITION PROBLEMSPROBLEMS

Plan in Advance– Address incoming transition in response to RFP

and in management agreement

– Address outgoing transition in management agreement

Required by ANSI standard (3.5)

INCOMING TRANSITIONSINCOMING TRANSITIONS

Should be part of your response to an RFP– Avoid tortious interference claim

Also address in management agreementRequires outgoing management cooperationMore than a checklistTransfer of functions over time

– Does not happen all at once

INCOMING TRANSITIONSINCOMING TRANSITIONS

Due diligence before deciding to take on new client requires inquiry regarding:– Corporate good standing in appropriate jurisdictions– Tax filings up to date– Pending or threatened lawsuits– Insurance in place– Accurate picture of staff hours expended– IT compatibility/difficulty (website; database and files

within database; conversion of financial history)

INCOMING TRANSITIONSINCOMING TRANSITIONS

Transition fees are important– Determine current management “attitude”

Incoming transition fees should reflect:– Services almost always more than expected– Underbidding leads to understaffing and level of

service below what is required– Inadequate service leads to client dissatisfaction

Client should expect to pay 2 AMCs during transition

INCOMING TRANSITIONSINCOMING TRANSITIONS

Dealing with uncooperative current management– Personal relationships with management and IT

provider can be helpful– Using “back door” to obtain client data– Using legal counsel as a last resort

OUTGOING TRANSITIONSOUTGOING TRANSITIONS

Address in management agreement– Termination notice provisions (90-120 days)– AMC service through termination date– Client payments through termination date– Anticipate need for a transition agreement

BE “NICE”

OUTGOING TRANSITIONSOUTGOING TRANSITIONS

Transition Agreement– Transfer of management functions over time

Document everything transferred (3.5.1.)

– Retain financial responsibility until specified date Audit upon conclusion (3.5.6.)

– Transition services description and fees– Guaranteeing payment to AMC

More difficult if client controls funds Separate account for management fee funds AMC taking funds in advance

OUTGOING TRANSITIONSOUTGOING TRANSITIONS

Avoid losing clients to employees– Law varies by state– Address in employment agreement or handbook

Consideration and signature required

– Non-compete vs. client specific restriction Must be reasonable

– Restriction upon use of confidential information Define what is confidential Easier to enforce than non-compete

– Address in client contract (“no raid” provision)

NONPROFIT CORPORATION NONPROFIT CORPORATION LAW CHANGESLAW CHANGES

Vary by jurisdictionJurisdiction of client incorporation governsMajor types of changes include:

– “Default” provisions (notice, Board terms, power to amend bylaws, etc.)

– Limitation of liability of volunteers if so provided in Articles of Incorporation

NONPROFIT CORPORATION NONPROFIT CORPORATION LAW CHANGESLAW CHANGES

Major types of changes include:– Notice of meetings, elections and board

unanimous written consent now permitted electronically almost everywhere

– Board action by email now permitted in CO, GA, ND, TN and WI

– TX allows a non-voting director to serve without having fiduciary duties

NONPROFIT CORPORATION NONPROFIT CORPORATION LAW CHANGESLAW CHANGES

AMC should undertake a review of client organizing documents to determine whether changes in applicable law permit articles or bylaw amendments that would be beneficial to the client

HANDLING DIRECTOR HANDLING DIRECTOR CONFLICTS OF INTERESTCONFLICTS OF INTEREST

Clients should have COI Policy and required disclosure– To whom does COI Policy apply?– Include instruction in new director orientation– COI is OK; undisclosed COI is not– Disclosure annually plus as a conflict arises– Logistics of disclosure process important

Director personal liability for approval of interested party transaction (New York case)

BOARD EXECUTIVE SESSIONBOARD EXECUTIVE SESSION

What do we mean by “executive session”?– Open vs. closed board meetings– Executive docket

Executive session at every board meeting or only when necessary– Who remains in the board room?– Appropriate topics (COI, AMC contract)– How to go into executive session

Danger of misuse, particularly in trade associations in concentrated industries

CHAPTER RELATIONSHIPSCHAPTER RELATIONSHIPS

To incorporate or not to incorporate– Effect upon chapter officers and directors– Worst case: unincorporated, separate entity

How to minimize national liability for acts of the chapter – Treat as part of the national (assume responsibility) and

control activities tightly– Treat as separate entity without actual authority and

minimize apparent authority (require disclosures)

CHAPTER RELATIONSHIPSCHAPTER RELATIONSHIPS

Evaluate insurance coverage under national’s policies

Affiliation agreement necessary to control national’s intellectual property

Separately incorporated chapters may be included within national’s group tax exemption

ANTITRUST LAW ANTITRUST LAW DEVELOPMENTSDEVELOPMENTS

Class action certified against titanium dioxide producers in price-fixing case– Allegation that price increases corresponded

with trade association meeting dates– Trail scheduled in federal court in Maryland for

September, 2013

ANTITRUST LAW ANTITRUST LAW DEVELOPMENTSDEVELOPMENTS

FTC action against ductile iron pipe fitting manufacturers still pending against 2 manufacturers– Allegation that association facilitated

agreement to monopolize and fix prices through the exchange of monthly sales and production volume information

– One alleged co-conspirator settled

ANTITRUST LAW ANTITRUST LAW DEVELOPMENTSDEVELOPMENTS

Heightened enforcement risk for trade and professional associations in Canada– 2 recent cases by Canadian Competition Bureau

Toronto Real Estate Board Canadian Wireless Telecommunications Association

– Interim Commissioner of Competition remarks Using standards to limit competition or raise barriers to entry Using information exchanges to reduce incentives to compete

ANTITRUST LAW ANTITRUST LAW DEVELOPMENTSDEVELOPMENTS

Issue for AMCs, particularly those managing trade associations:– Both private and government lawsuits are back– Plaintiffs are looking at associations as fertile ground

for conspiracies– Antitrust compliance policies more important than ever– AMC staff must be aware of the law and of how to stop

a meeting if necessary– Check APL insurance policy for antitrust sublimit

THANK YOUTHANK YOU

C. Michael Deese

Howe & Hutton, Ltd.

1901 Pennsylvania Avenue, N.W.

Washington, DC 20006

(202) 466-7252

cmd@howehutton.com