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Cypen & Cypen
NEWSLETTER
for
OCTOBER 18, 2007

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001

1. FLORIDA STATUTE DOES NOT REQUIRE PUBLIC OFFICIAL FALSELY ACCUSED OF ETHICS VIOLATION TO PROVE ACCUSATION MADE WITH ACTUAL MALICE:

Brown, a county property appraiser, was the subject of two ethics complaints filed against him by political opponents. Both complaints were submitted to the Florida Commission on Ethics and both were eventually dismissed for lack of probable cause. Brown subsequently claimed costs and attorneys’ fees under Section 112.317(7), Florida Statutes, which provides:

In any case in which the commission determines that a person has filed a complaint against a public officer or employee with the malicious intent to injure the reputation of such officer or employee by filing the complaint with knowledge that the complaint contains one or more false allegations or with reckless disregard for whether the complaint contains false allegations of fact material to a violation of this part, the complainant shall be liable for costs plus reasonable attorney’s fees incurred in the defense of the person complained against, including the costs and reasonable attorney’s fees incurred in proving entitlement to and the amount of costs and fees. ...

The Commission construed the statute to require a finding of “actual malice,” which was not proved. On appeal from denial of his claim for costs and attorney’s fees, Brown contended that the phrase “reckless disregard for the truth,” should be interpreted by its plain meaning. In reversing, the appellate court found it significant that “actual malice” does not appear in text of the statute, particularly since the Legislature has shown that it understands the precise meaning of that term, by using it in proper context in other statutes. So, the elements of a claim by a public official for costs and attorney’s fees are that (1) the complaint was made with a malicious intent to injure the official’s reputation; (2) the person filing the complaint knew that the statements made about the official were false or made the statements about the official with reckless disregard for the truth; and (3) the statements were material. Justice served. Brown v. State of Florida, Commission on Ethics, 32 Fla. L. Weekly D2342 (Fla. 1st DCA, September 28, 2007).

2. FLORIDA CITY CAN ADOPT ORDINANCE REGULATING SOLICITATION OR ACCEPTANCE OF CHARITABLE DONATIONS BY COMMISSIONERS:

The Florida Attorney General was recently asked if the City Commission of the City of Fort Lauderdale is authorized, pursuant to its municipal home rule powers, to adopt an ordinance regulating solicitation of acceptance of charitable donations by members of the City Commission. Of course, the Attorney General made reference to Part III, Chapter 112, Florida Statutes, the Code of Ethics for Public Officers and Employees, which generally regulates acceptance of solicitation of gifts by public officers and employees. The Attorney General went on to say that the Florida Commission on Ethics has recognized that a municipality may enact a municipal code of ethics more stringent than, or with provisions differing from, the state Code of Ethics, so long as it does not conflict with the state statutory provisions. In other words, while a county or municipal ethics code may contain provisions apart from those in the state Code of Ethics, compliance with the local code cannot result in a violation of the state code or make compliance with the state code impossible. AGO 2007-39 (September 24, 2007).

3. SEC OBSERVATIONS ON EXECUTIVE COMPENSATION DISCLOSURE:

The Securities and Exchange Commission’s new and revised rules relating to executive compensation disclosure became effective on November 7, 2006. These rules have significantly changed the disclosure a public company provides about how it compensates its most highly paid executive officers, including its principal executive officer, its principal financial officer and its directors. On December 22, 2006, the Commission further amended the disclosure requirements for executive and director compensation with respect to how a public company discloses stock and option award compensation. The revised rules also update and clarify the related person transaction disclosure requirements, and consolidate and add corporate governance disclosure requirements. In the Division of Corporation Finance’s regular review of public company current and periodic reports, SEC staff regularly provides comments to companies in which it seeks clarification of current disclosure or additional information, so staff may better understand why a company made a particular disclosure. In some instances, SEC staff may ask a company to revise or enhance its disclosure by amending the document in which it has been provided. In other instances, staff may ask a company to revise or enhance its disclosure in future filings. In 2007, SEC staff undertook a project to review the executive compensation and other related disclosure of 350 public companies to evaluate compliance with the revised rules, and provide guidance on how those companies could improve their disclosure. Two dominant themes emerge from these reviews and individualized comments to companies. First, the Compensation Discussion and Analysis needs to be focused on how and why a company arrives at specific executive compensation decisions and policies. This statement does not mean that disclosure must be longer or more technical; indeed, shorter, crisper and clearer will often be better. The focus should be on helping the reader understand the basis and the context for granting different types and amounts of executive compensation. Second, the manner of presentation matters -- in particular, using plain English and organizing tabular and graphical information in a way that helps the reader understand a company’s disclosure. The executive compensation rules require companies to disclose a great deal of information. Techniques such as providing an executive summary or creating tables or charts tailored to a company’s particular executive compensation program can make the disclosure more useful and meaningful. Staff encourages companies to continue thinking about how executive compensation information -- from the big picture to the details -- can be better organized and presented for both the lay reader and the professional. These SEC staff observations, located at http://sec.gov/divisions/corpfin/guidance/execcompdisclosure.htm, were issued in modified form on October 9, 2007.

4. PORTION OF HUSBAND’S DISABILITY PENSION MARITAL ASSET TO EXTENT NOT REPRESENTING COMPENSATION FOR DISABILITY:

Husband retired from Broward Sheriff’s Office under disability election and began receiving benefits from Florida Retirement System. FRS is a defined benefit pension plan, under which employees accrue benefits based on service credits corresponding to the number of years worked. Husband’s normal retirement age under FRS would have been 55. However, due to husband’s disability, he was able to begin receiving his monthly pension payments approximately two years earlier. Husband’s disability did not enhance his number of credits under FRS, and, therefore, did not increase the amount of monthly benefit he received; it just provided plan benefits early. In a dissolution of marriage proceedings between husband and wife, the trial court determined that the husband’s disability pension was not a marital asset subject to equitable distribution because it represented actual compensation for disability. (Contrariwise, the trial court also found that husband’s disability was not a factor in the amount of monthly benefit he receives.) On appeal, as one would expect, the district court reversed and remanded for the trial court to award wife her portion of the pension in equitable distribution. Gaffney v. Gaffney, 32 Fla. L. Weekly D2328 (Fla. 4th DCA, September 26, 2007).

5. R.I. CHANGE TO DC PLAN COULD COST MILLIONS:

A study commissioned by the Office of Rhode Island’s Governor reveals that moving to a 401(k)- style retirement system could cost state taxpayers $151.5 Million next year and more than $520 Million over the next seven years, before the state sees any savings. The study looked specifically at cost of freezing the pension system to new employees as of July 1, 2008, assuming that new hires would join a defined contribution plan modeled after 401(k)s that dominate the private sector, according to the Providence (Rhode Island) Journal. Only three states (Alaska, Michigan and West Virginia) and the District of Columbia require state employees or public school teachers to enroll in a DC plan. Another six states -- including Florida -- make such plans optional. One DC critic said the study did not even take into consideration costs associated with any new defined contribution system.

6. RECENT CHANGES TO DEFINED BENEFIT PLAN DESIGN:

A survey of more than 125 Vanguard defined benefit plan sponsors indicates that 6 of 10 respondents altered their DB plan design during 2000-2006. The most common change was a pension freeze combined with an enhanced 401(k) plan, although hybrid designs were important, especially at large firms. Vanguard’s findings highlight the ongoing evolution of the private-sector retirement system away from formula-based DB plans toward account-based DB or 401(k) programs. Here are excerpts from the Executive Summary:


Common strategies. Among respondents making DB plan changes, the top three design changes were a new-hire freeze (26%), a total freeze (20% of plans) or a reduction in the generosity of a traditional DB plan (13%). Nearly 3 in 10 plans introduced a hybrid design.

Motivation. Three factors relating to costs -- controlling future costs, reducing cost volatility and reducing current costs -- were top reasons for altering DB plan design.

Enhanced 401(k) for new hires. Just over half of respondents increased employer 401(k) contributions in conjunction with their DB plan change.

Automatic enrollment. More than one-third of respondents added automatic enrollment for new hires (with or without automatic savings increases) when they altered their DB plan design.

Menu changes. Nearly two-thirds of respondents modified their 401(k) investment menu at the time they changed their DB plan.

Motivations for continuing a DB plan. Among respondents who continue to offer an active DB plan, 8 in 10 cited various employee concerns as “extremely or very important” in their decision to retain the plan.

Future changes. Over the next five years, the prospect for future DB plans remains reasonably high. Nearly 1 in 5 respondents with an active DB plan indicated that it is “extremely or very likely” they will make a change to their plan.

Reaction to Pension Protection Act of 2006. Half of sponsors felt that PPA encourages employers to freeze DB plans; half did not.

The findings suggest that the recent shift away from traditional DB plans is likely to continue, although at a somewhat slower pace, given the large number of design changes that have already occurred.

7. LITIGATION AGAINST MAJOR COMPANIES EBBS:

Fewer major U.S. corporations are being sued this year than last, a new law firm-commissioned study finds. Seventeen percent of corporate counsel surveyed got through the 12-month period ending in June without being sued, up from 11% in the prior 12 months. The survey also showed a decline in the number of regulatory actions against U.S. companies in 2006-2007, as well as a reduction in internal investigations requiring outside counsel. And in-house counsel see the trend continuing: only 22% said they expect to see their company face more lawsuits over the next 12 months, compared with 33% of those surveyed the year before. Other major findings:

  • Fifty-eight percent of counsel at U.S. companies reported one to 20 suits and 25% reported 21 or more. These numbers compare to 55% with one to 20 suits and 34% with 21 or more in 2005-2006.
  • While total suits dropped, exposure in those that persisted is higher. Thirty-nine percent of respondents said they had been hit with a suit for at least $20 Million in the past year, compared to 17% in 2005-2006.
  • Class action suits were on the rise, with 52% of respondents reporting at least one such suit pending, compared with 34% in 2005-2006. Among companies with $1 Billion or more in revenues, 69% faced at least one class action and 19% had 20 or more class actions pending.
  • Patent infringement cases are on the rise: 36% of respondents said the number of such claims had gone up in the past three years, 10% saw a decrease and 54% said there was no change.
  • In 2006-2007, 54% of respondents had at least one internal investigation requiring outside counsel, compared with 63% in 2005-2006.

The survey was conducted by Greenwood Associates, collecting responses in June, 2007 from in-house counsel at 253 companies in the U.S. and 50 in the U.K.

8. SERVICE AS CITY MANAGER AND CITY CLERK WOULD VIOLATE FLORIDA CONSTITUTIONAL PROHIBITION ON DUAL OFFICE HOLDING:

The Florida Attorney General was recently asked whether a city council may appoint the same person to fill two charter offices to exercise power of the sovereign, namely office of the city manager and office of the city clerk, without violating the prohibition against dual office holding as provided for in Article II, Section 5(a) of the Florida Constitution. That section provides that no person shall hold at the same time more than one office under the government of the state and the counties and municipalities therein. In other words, a person may not simultaneously serve in more than one state, county or municipal “office.” Here, the city manager and the city clerk, under the charter, exercise sovereign power of the municipality. Therefore, both are offices. However, assuming a particular officeholder is subject to the constitutional dual office prohibition, a legislative designation of that officer to perform ex officio the function of another or additional office is not a holding of two offices at the same time in violation of the Constitution, provided the duties imposed are consistent with those being exercised. Thus, while the city council would be precluded from appointing the city clerk also to serve as city manager, the city code could be amended to provide that the city manager shall also perform duties of the city clerk. AGO 2007-43 (October 16, 2007).

9. QUOTE OF THE WEEK:

“Be pleasant until ten o’clock in the morning and the rest of the day will take care of itself.” Elbert Hubbard

10. ONE OF LIFE’S RULES:

The most precious thing we have is life, yet it has absolutely no trade-in value.


Copyright, 1996-2007, all rights reserved.

Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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