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Ex-board members were not ‘employers’

The definition of “employer” applicable to actions under Code § 40.1-29(J) for unpaid wages is narrower than the definition in the Virginia Minimum Wage Act, or VMWA, and the Fair Labor Standards Act, the Supreme Court of Virginia has held. 

The plaintiffs sued for unpaid wages and named two members of their former employer’s board of directors as defendants, arguing that they were jointly and severally liable because of actions taken in the interest of their employer.

But the court agreed with the defendants that the statute at issue “utilizes a narrower definition of ‘employer’ than that used in the FLSA, and it excludes individuals from joint employer liability under Code § 40.1-29(J) based upon actions they undertake on behalf of an actual employer.”

Chief Justice S. Bernard Goodwyn authored the opinion in Cornell, et al. v. Benedict, et al., (VLW 022-6-046).

Unpaid wages

Ashley Cornell and Kendall Sparks are licensed therapists who worked for Christian Psychotherapy Services. They were paid a percentage of their collected receivables as commissions. 

After Christian Psychotherapy’s founder died in August 2020, the company suffered a financial downturn and hired Touchstone Business Solutions as a “turnaround consultant.” Touchstone formed a board of directors and took over Christian Psychotherapy’s management. 

Jason Benedict, a Touchstone employee, joined the company’s board and served as acting president from October 2020 until January 2021. Cheryl Ludvik served as director of operations and, later, on the board as chairperson and treasurer until she left in January 2021.

The board voted to reduce the percentage of commissions paid to employees in December 2020. In January 2021, the board decided to declare bankruptcy and reduce commissions again. The next day, Christian Psychotherapy laid off all its employees, effective immediately.

Benedict worked on the mid-January 2021 payroll, but he then resigned from the board and Touchstone ended its agreement with the defendant. 

The plaintiffs never received their commissions.

Cornell and Sparks then sued on behalf of themselves and other clinicians to recover their unpaid commissions.

In the complaint, the plaintiffs said that Benedict and Ludvik should be considered as employers who were jointly and severally liable with Christian Psychotherapy for the unpaid wages pursuant to Code § 40.1-29(J), because of their actions in the interest of the company in relation to the clinicians.

But Benedict and Ludvik argued they were not employers under the statute and that their resignations before the wages were withheld constituted an absolute bar to recovery.

The circuit court sided with the defendants.

The circuit judge said the plaintiff’s argument for adopting the “economic reality” test used in FLSA cases would be “more persuasive if this were a case under [the VMWA], as that definition of employer seems more closely aligned with the FLSA.”

But “even under that test, Benedict and Ludvik have not been proven to be the joint employers of the Clinicians,” the lower court noted. Instead, all decisions about withholding wages were made by the board. 

The plaintiffs appealed.

‘Person’ and ‘entity’

Code § 40.1-29(J) allows for collective action to recover unpaid wages. On appeal, the plaintiffs argued that definition of “employer” in that statute tracks the definition used in the FLSA and imposes joint liability on individual managers.

?Benedict and Ludvik countered that the statute uses a narrower definition of “employer” than that used in the FLSA. 

The Supreme Court of Virginia agreed.

“The Clinicians’ argument, that the definition of “employer” in Code § 40.1-2 mirrors the definition found in the FLSA, must confront the conspicuous difference in statutory language prominent in those two statutes,” Goodwyn wrote. “Congress, in enacting the FLSA, defines ‘employer’ as ‘include[ing] any person acting directly or indirectly in the interest of an employer in relation to an employee.’” 

The justice pointed out this is different from the definition applied under § 40.1-29(J), which says that “employer” means an “individual, partnership, association, corporation, legal representative, receiver, trustee, or trustee in bankruptcy doing business in or operating within this Commonwealth who employs another to work for wages, salaries, or on commission and shall include any similar entity acting directly or indirectly in the interest of an employer in relation to an employee.”

“Our canons of statutory construction presume that the General Assembly’s decision not to adopt the FLSA definition of ‘employer’ as a whole represents a conscious decision with deliberate implications,” Goodwyn wrote. “This presumption becomes stronger when we consider that the General Assembly did in fact adopt the FLSA’s choice of the word ‘person’ over ‘entity’ in one closely related statute, and it expressly incorporated the FLSA definition by reference in another.”

The court then looked to Black’s Law Dictionary for definitions of “person” and entity.” A person, in part, is “‘a human being; … an entity (such as a corporation) that is recognized by law as having most of the rights and duties of a human being,’” while an entity is “an organization (such as a business or governmental unit) that has a legal identity apart from its members or owners.’” 

Goodwyn said, “It follows from a comparison of these two definitions that an entity is to a person what a square is to a quadrangle: entities may be persons, but not all persons are entities.” 

Finding no reference to natural persons or individuals in the legal definition of entity, Goodwyn concluded “from this distinction in plain meaning that the General Assembly intended to omit individuals from joint employer liability for unpaid wages under Code § 40.1-29(J) by using a narrower definition of ‘employer’ than did Congress in the FLSA.”

As a result, the plaintiffs could not hold Benedict and Ludvik liable. 

Settled law?

Norfolk attorney James Theuer, who represented the plaintiffs, told Virginia Lawyers Weekly he was disappointed by the outcome.

He thought it was settled that individuals could be liable under the VWPA since the Virginia Supreme Court’s 1976 decision in Makarov v. Commonwealth, which held that imprisonment penalties under the VWPA were unconstitutional and cited a definition of employer which included “individual.”

According to Theuer, the Virginia Department of Labor and Industry, or DLI, has also taken that position for the last 45 years.

“It would have been helpful for the court to explain why the DLI and Makarov were wrong,” he said.

Chesapeake attorney Christopher Davis, who represented Benedict, said a ruling for the plaintiff “could have had radical implications.”

“The plaintiffs argued that Makarov controlled but the judges recognized that holding didn’t address individual liability,” he said.

How to expedite a patent application

The United States Patent and Trademark Office generally takes about 24 months to make a final decision on the approval of a patent application. Much of this time is due to the long queue that an application must get through prior to being examined by a patent examiner at the USPTO. 

However, there are several procedures available to inventors and applicants of a patent application which can cut that time by more than half. Utility patent applications and design patent applications are expedited differently. The focus of this article will be on the procedures available to expedite a nonprovisional utility patent application.

Prioritized examination using Track One

The Track One (sometimes referred to as Track 1) program promises applicants a final decision on a utility patent application within 12 months of the grant of Track One status. 

However, under the Track One program, it is not unusual to obtain a decision to grant or deny patentability to an application within six months. Additionally, this program is potentially available to any applicant.

All an applicant needs to do to obtain Track One status is to complete and file a Track One Request form — titled: “Certification and Request for Prioritized Examination Under 37 CFR 1.102(e)” — and pay the required fee. 

The fee, though, is not inexpensive. For large entities the fee is about $4,140; for small entities the fee is about $2,070; and for micro entities the fee is about $1,035. This fee must be paid in addition to the normal fees associated with preparing and filing the patent application.

The Track One program does have certain strict rules that must be followed, or the applicant will lose their Track One status. For example:

• The application and Track One request must be filed electronically.

• The application must not contain, or be amended to contain, more than four independent claims, more than 30 total claims, or any multiple dependent claims.

• There can be no requests for an extension of time to respond to an office action from the USPTO.

Patent prosecution highway for foreign applications

The USPTO is a global participant in the Patent Prosecution Highway, or PPH. Under PPH, participating patent offices have agreed that when an applicant receives a ruling from a first patent office that at least one claim is allowable, the applicant may request fast track examination of corresponding claims in a corresponding application that is pending in a second patent office. 

So, for example, if an applicant first files an application in Germany and gets at least one of its claims allowed by the German patent office, then the same applicant may request fast track status in the United States for a later filed corresponding U.S. application having corresponding claims.

To apply for the PPH program, an applicant must fill out a petition to make special under the Patent Prosecution Highway, provide the allowed application from the foreign patent office and provide a cross reference list of the U.S. claims to that of a translation of the allowed claims.

Importantly, there is no fee required under the PPH program. Moreover, the restrictions that apply in the Track One program do not apply to the PPH program.

Petition to make special for age or health of inventor

Normally, patent applications are examined in the order that they are filed under a “first come, first served” basis. 

However, a petition to make special may be granted if one of the inventors in a patent application is over the age of 65 or is ill to the point where they may not be available to assist in the prosecution of the patent.

A petition to make special due to an inventor’s age is easy to fill out. The petition is granted almost automatically upon a statement by the inventor that he/she is over 65 years old, or a certification is made by a registered attorney/agent having evidence (such as a copy of a driver’s license) that the inventor is over 65 years old.

An application may also be made special upon a petition that is accompanied by any evidence showing that the state of health of at least one named inventor is such that at least one named inventor might not be available to assist in the prosecution of the application if it were to run its normal course, such as a doctor’s certificate or other medical certificate. 

However, petitioners should note that personal/medical information submitted as evidence to support the petition may be available to the public. If a petitioner does not wish to have this information become part of the application file record, then the information must be submitted as trade secret or proprietary information pursuant to the rules detailed in the U.S. Manual of Patent Examining Procedure, or MPEP, 724.02.

Importantly, there is no fee required for either the petition to make special for an inventor’s age or health. Additionally, there are no restrictions placed on the prosecution of the application.

Climate Change Mitigation Pilot Program

The Climate Change Mitigation Pilot Program is designed to positively impact the climate by accelerating examination of patent applications for innovations that reduce greenhouse gas emissions. 

Under this program, qualifying applications involving greenhouse gas reduction technologies are advanced out of turn for examination (granted special status) until a first action on the merits (typically the first substantive examination) is complete. 

For qualifying applications, the applicant does not incur the petition to make special fee and is not required to satisfy the other requirements of the accelerated examination program. The USPTO will accept petitions to make special under this program until June 5, 2023, or the date when 1,000 applications have been granted special status under this program, whichever occurs earlier.

The requirements for qualifying for this program are:

• Applications must contain one or more claims to a product or process that mitigates climate change by reducing greenhouse gas emissions.

• The application must be electronically filed.

• Applicants must file the petition to make special with the application or within 30 days of the filing date or entry date of the application.

• Applicants may not file a petition to participate in this pilot program if the inventor or any joint inventor has been named as the inventor or a joint inventor on more than four other nonprovisional applications in which a petition to make special under this program has been filed.

Again, it is important to note that under this program, there is no fee required and there are no restrictions placed on the prosecution of the application.

Stephen P. Scuderi is an associate with Heslin Rothenberg Farley & Mesiti. His practice involves all phases of intellectual property law, including the drafting of hundreds of patents in the electrical and mechanical arts. He can be reached at [email protected].

Judge limits scope of expert testimony

The Eastern District of Virginia has limited the scope of expert testimony in advance of a trial between two companies litigating whether commercial lease conditions relating to the construction and operation of a fitness club were breached.

U.S. District Judge Rossie D. Alston Jr. excluded one the plaintiff’s experts whose testimony he found “hinges largely on a general reliability analysis rather than a scientific assessment typically prescribed by Daubert.”

The judge blocked the remaining experts from interpreting the parties’ legal obligations under the lease but allowed them to testify regarding the particulars of work required under the lease, as well as industry customs and usages.

Alston also deferred “to the strong presumption of public access at trial” and rejected the plaintiff’s requests for a protective order and to seal the underlying lease.

The opinion is Clarendon Regency IV LLC v. Equinox Clarendon Inc. (VLW 022-3-459).

Lease dispute

Clarendon Regency leased commercial premises to Equinox Clarendon for the construction and operation of a fitness club in Arlington. In November 2020, Clarendon Regency sued Equinox for breaching the lease.

In July 2021, Clarendon Regency and LTF Lease Company entered into a new lease which included more square footage and different rent than the Equinox lease.

Equinox countersued in October 2021, seeking a declaratory judgment that it hadn’t breached the lease or, alternatively, that Clarendon Regency breached the lease by subsequently re-letting the premises to a third party.

During discovery, Equinox requested the LTF lease for the purpose of calculating damages. Clarendon Regency produced a copy of the LTF lease marked with “CONFIDENTIAL” and “ATTORNEYS’ EYES ONLY” designations.

The court granted a protective order in January 2022 which allowed allegedly confidential documents to be filed under seal.

Clarendon Regency later produced a redacted LTF lease, advised Equinox to use that version at trial and moved for another protective order to seal the redacted lease. 

Equinox opposed that motion with a copy of the redacted LTF lease attached.

Expert witnesses

The parties also moved to exclude each other’s experts. 

Clarendon Regency sought to exclude Chris Sheridan and Rupa Patel on the basis that their opinions were based on their subjective interpretation of the lease terms. 

Equinox countered that their experts were responding to the opinion of plaintiff’s expert Benjamin Keeney that construction drawings attached to the lease were “final.” If Sheridan and Patel were excluded, the defendant argued that Keeney also should be excluded.

Alston noted the U.S. Supreme Court’s holding in Daubert that “[a]n admissible expert opinion generally must be ‘based on sufficient facts or data,’ be ‘the product of reliable principles and methods,’ and ‘the expert [must have] reliably applied the principles and methods to the facts of the case.’”

“For those seeking to testify on the basis of sheer experience rather than a scientific technique, such experts are not required to ‘rely on anything like a scientific method,’” Alston said. “Instead, their experiential testimony must be ‘reliably applied to the facts.’”

Given this, the judge found that Sheridan and Patel were qualified to testify as experts. Their report provided a side-by-side comparison of the scope of the lease terms and addressed whether the construction drawings satisfied those terms.

However, the report also included responses to Keeney’s report whether the drawings were final, and included several assertions related to what is to be considered final.

“Those opinions touch directly on interpreting ‘the legal obligations of parties under a contract’ and functionally tell the factfinder what decision to make,” Alston pointed out. “As such, the testimony of Sheridan and Patel will be limited at trial to assessments regarding which particulars … were satisfied in the drawings provided to Defendant.”

As such, testimony from Sheridan and Patel was limited to “assessments regarding which particulars of [the lease] were satisfied in the drawings provided to Defendant [and also] to industry and custom as it applies to the purpose of delivering plans and specifications for a landlord’s work as it relates to similar leasing arrangements.”

Similarly, Alston found that Keeney’s report was “replete with judgments as to whether Plaintiff satisfied the conditions of the contract, which will not be admissible at trial.” Instead, the judge limited Keeney’s testimony to the same issues about which Sheridan and Patel could testify.

Equinox also moved to exclude plaintiff’s expert Christine Gresham, a corporate real estate transactional attorney, arguing that she was unqualified and lacked personal knowledge of the lease.

But Clarendon Regency said that Gresham was necessary to rebut Sheridan and Patel.

“Unlike Sheridan, Patel, and Keeney, Gresham’s testimony relies solely on her experience observing similar commercial real estate lease transactions and admits that she has no engineering, architectural or construction experience,” Alston wrote. “As a result, Gresham’s proposed testimony hinges largely on a general reliability analysis rather than a scientific assessment typically prescribed by Daubert.”

Therefore, since the court would not allow Sheridan, Patel or Keeney “to opine on what constitutes final plans and specifications for purposes of fulfilling contractual requirements in the Lease, the Court concludes that Gresham’s testimony provides no additional probative value to this dispute.” 

Alston excluded Gresham from testifying as an expert, while allowing the expert testimony of Sheridan, Patel and Keeney on a limited basis.

Protective order/seal?

Clarendon Regency contended the commercial terms of the LTF lease must be redacted and the unredacted material sealed to protect LTF from competitors like Equinox, who would benefit from learning of LTF’s confidentially negotiated contractual arrangements. 

Equinox, however, said the current protective order didn’t extend confidentiality obligations to trial documents and Clarendon Regency hadn’t provided a basis for redactions.

   Alston agreed. 

“[T]he fact that plaintiff and LTF have included a confidentiality provision in their lease ‘do[es] not immunize th[at] agreement[] from discovery,’” he wrote. “Nor does the fact that a filing contains a ‘sensitive commercial document [] that may be accessed by competitors []’ necessitate sealing.”

In the end, the plaintiff failed to submit a copy of the unredacted LTF lease to the court for in camera inspection or indicate what categories of information were especially sensitive for its competitor to see at trial.

“Without the necessary information available for review, the Court must defer to the strong presumption of public access at trial,” Alston wrote. “Defendant has also conveyed to the Court that portions of the redacted material in the LTF Lease would reveal ‘which lease spaces’ LTF could apply its tenant improvement allowance toward. That determination would directly impact the calculation of profit or loss incurred by Plaintiff with respect to the space initially leased to Defendant with the same space subsequently leased to LTF.”

The judge declined to seal the redacted lease or bar the production of the unredacted lease at trial.

Kallen named VLW’s 2022 ‘Leader of the Year’

Michelle S. Kallen was chosen by her peers as Virginia Lawyers Weekly’s 2022 “Leader of the Year.”

Kallen, former solicitor general with the Office of the Attorney General of Virginia and now a partner at Jenner & Block in Washington, D.C., received the honor Oct. 25 at Virginia Lawyers Weekly’s annual Leaders in the Law and Up & Coming Lawyers awards program at The John Marshall in downtown Richmond. This year’s ceremony celebrated the 17th class of Leaders in the Law.

Kallen, who was selected by a secret ballot of the 30 members of the 2022 class, recently joined Jenner & Block’s Appellate and Supreme Court Practice. According to a press release from the firm, Kallen also maintains an active pro bono practice.

“It’s really an honor to be here among these incredible honorees today and I really am touched by the vote from my colleagues and my peers,” Kallen said during her Oct. 25 acceptance speech.

A graduate of the Vanderbilt University Law School, Kallen began her career as a clerk for Judge Jane Stranch of the 6th U.S. Circuit Court of Appeals. She later served as an associate for Simpson Thatcher & Bartlett and Paul, Weiss, Rifkind, Wharton & Garrison before joining the attorney general’s office in 2018.

Public service

At the attorney general’s office, Kallen served as deputy solicitor general under then-Solicitor General Toby Heytens. When Heytens was nominated by President Joe Biden for a judgeship on the 4th U.S. Circuit Court of Appeals in 2021, Kallen was elevated to solicitor general.

Her term as solicitor general was groundbreaking. She became the first female solicitor general in Virginia’s history and led Virginia’s first all-female solicitor general team.

In her speech, Kallen mentioned a plaque in the solicitor general’s office that lists the names of former solicitors general, people who she said “took me under their wings and supported me during some tumultuous times.”

“But there was no woman on that list,” Kallen noted. “And it really has been an honor to be able to leave that office knowing that maybe someone else comes through those doors and it’s a little different in terms of looking at that plaque.”

As solicitor general, Kallen spearheaded efforts by Virginia, Illinois and Nevada to have the Equal Rights Amendment recognized and served as lead counsel in litigation to certify and publish the Equal Rights Amendment to the U.S. Constitution. 

In 2020, Virginia became the 38th state to ratify the Equal Rights Amendment, a proposed amendment to the U.S. Constitution approved by Congress in 1972 to ensure equality under the law is not denied on account of sex.

Kallen’s term as solicitor general also included representing the commonwealth in legal challenges to the removal of the Robert E. Lee Monument on Richmond’s Monument Avenue. Then-Gov. Ralph Northam ordered the removal of the monument, which was owned by the commonwealth, in the summer of 2020. 

After several legal challenges, the monument was removed in September 2021.

She also represented the commonwealth in matters before a variety of courts, including the U.S. Supreme Court, the Supreme Court of Virginia, the U.S. District Court for the Eastern District of Virginia and other state and federal courts. Such cases included defending Virginia’s response to the COVID-19 pandemic in court and serving as lead counsel in election matters. 

In recognition of her work at the Office of the Attorney General of Virginia, Kallen and her team were awarded the National Association of Attorneys General Best Brief Award in 2019 and 2020.

It was while serving at the attorney general’s office that Kallen said she had her most humbling experience of her legal career while arguing on behalf of the commonwealth before the Supreme Court of Virginia for the first time.

“The idea that I had the role of speaking on behalf of the commonwealth was daunting and a true honor,” Kallen wrote in her Virginia Lawyers Weekly Leaders in the Law questionnaire. 

Upon leaving the Office of the Solicitor General in January, Kallen continued her public service by serving as special litigation counsel to the U.S. House of Representatives. Specifically, Kallen represented the Select Committee to Investigate the January 6th Attack on the U.S. Capitol in litigation. 

As special litigation counsel, Kallen successfully defended the committee in multiple matters, including efforts to block subpoenas for phone records and an effort to compel trial testimony from lawmakers and congressional staffers.

Equality advocate

Throughout her career, Kallen has been noted for her advocacy for equality. 

Kallen is director of Women Lawyers on Guard, a national nonpartisan group serving to “preserve, protect, and defend the democratic values of equality, justice, and opportunity for all.” 

She is a co-founder of the Washington Area Women Trial Attorneys, served as a board member of the Women’s Bar Association of D.C., and has been involved with several other women’s attorney groups throughout her career.

Kallen also has spoken on numerous panels about the legal issues surrounding the potential ratification of the Equal Rights Amendment, dating back to before Virginia ratified the amendment. She currently serves on the ERA Advisory Council for the ERA Coalition, a group that seeks to amend the Constitution to include the ERA.

Serving as a mentor for The Appellate Project, which seeks to “empower law students of color, particularly those most underrepresented, to become the next generation of lawyers and judges in our highest courts,” is another way Kallen gives back to the community.

In her speech, Kallen commended the “kindness and warmth” of the Virginia bar while also encouraging a call-to-action for her fellow Virginia attorneys.

“Take someone under your wing, support someone, maybe someone who’s different than you, and show them the warmth and mentorship that I was shown from former leaders in Virginia,” Kallen said. “If every one of us did that, we can look at plaques hanging throughout the commonwealth and see names like yours and mine and know that with the right support, any of us has the opportunity to achieve really great things.”

Motorcyclist thrown from bike in crash with pickup truck — $850,000 settlement

Type of action: Auto accident

Injuries alleged: Right femur fracture, left orbital wall fracture, left corneal abrasion, nasal bone fracture and wound infection

Name of case: Hewitt v. Moore, et al.

Court: Chesapeake Circuit Court

Case no.: CL20-8792

Special damages: $369,000

Demand: $1,000,000

Verdict or settlement: Settlement

Amount: $850,000

Attorney for plaintiff (and city): Al Inigo, Staunton

Description of case: Plaintiff was operating his motorcycle westbound on Route 13 South in Chesapeake when the driver of a Ram 3500 quad truck, pulling a landscaping trailer, failed to yield the right of way and made an improper left turn in front of plaintiff. Despite attempting to take evasive actions, plaintiff was unable to avoid the crash and struck the rear quarter panel of the truck. The impact hurled the plaintiff from the motorcycle and onto the pavement. Defendant asserted a contributory negligence defense, based on an allegation that plaintiff was exceeding the speed limit. Plaintiff admitted that he was exceeding the speed limit at the time of the crash. The parties settled the case for $850,000 after suit was filed.

Plaintiff’s attorney Al Inigo provided case information. [022-T-131]

Permanent neck injury, risk of paralysis after treatment delay — $1.5M settlement

Type of action: Personal injury, negligence

Injuries alleged: Misdiagnosed atlantoaxial rotary displacement, leading to solid instrumented fusion from the base of the skull to C3l which resulted in permanent limited range of motion of the neck and danger of possible paralysis from any head/neck trauma

Tried before: Mediation

Date resolved: 7/21/2022

Special damages: $406,250 in past medical expenses

Verdict or settlement: Settlement

Amount: $1,500,000

Attorneys for plaintiff (and city): James “Jim” W. Haskins and Scott C. Wall, Martinsville; Anthony M. “Tony” Russell, Roanoke

Description of case: The patient was involved in a high impact motor vehicle collision. The patient was transported to a medical institution for treatment, at which the patient was diagnosed with a closed displaced fracture of the shaft of the right clavicle and discharged home for outpatient follow-up.

Thereafter, the patient followed up as an outpatient with providers for ongoing problems including painful/stiff neck, headaches and limited range of motion of the neck. No imaging was performed. The patient was diagnosed with and treated for acquired torticollis secondary to the motor vehicle collision.

The patient’s problems continued and worsened, after which the patient sought a second opinion at another medical institution, where the patient was immediately diagnosed with atlantoaxial rotary displacement. Atlantoaxial rotatory displacement is a condition in which the first and second vertebrae of the cervical spine become interlocked in a rotated position. This condition can result in serious consequences and thus have a significant impact on patients when diagnosis and treatment are delayed.

The patient went to another medical institution closer to home for treatment. Initial conservative care was attempted but due to the long period of time that the atlantoaxial rotary displacement was not diagnosed and treated, the patient required a solid instrumented fusion from the base of the skull to C3.

The patient had as good an outcome as possible from the surgery, but the patient is at danger of paralysis from any type of neck/head injury (so the patient is unable to participate in activities that could cause such an injury, including sports) and the patient has some permanent limited range of motion of the neck.

Pre-suit mediation with a mediator was unsuccessful, after which litigation was initiated. During the course of litigation, the parties entered into direct settlement negotiations that led to settlement before any discovery, other than written discovery, was conducted.

Anthony M. “Tony” Russell, plaintiff’s counsel, provided case information. [022-T-128]

Real estate industry benefits from Inflation Reduction Act

On Aug. 16, President Joe Biden signed into law the Inflation Reduction Act, or IRA, of 2022. Although it garnered headlines mostly for its $80 billion commitment to the Internal Revenue Service, the IRA went a long way toward providing tax incentives to real estate and related industries.

Selecting a few primary issues from the IRA, as with any large-scale legislation, can be a challenge. For example, the IRA provides new credit for zero-emission nuclear power production, but that is probably of little consequence locally. 

With that in mind, here are but a few of the main tax benefits in the IRA most relevant to the real estate industry.

Section 179D deduction

Section 179D provides for accelerated cost recovery, in the form of a tax deduction, for certain energy efficient commercial building, or EECB, property. The deduction is permitted for the year the property is placed in service. The IRA lowered the minimum EECB standard from a 50% reduction in total annual energy usage and power costs to a 25% reduction.

The IRA modifies the formula for calculating the maximum benefit, by switching to the concept of an “applicable dollar value,” or ADV, multiplication factor. Notably, the ADV can be increased if certain prevailing wage and apprenticeship requirements are satisfied.

The IRA also contemplates the EECB property could be installed on or in “tax-exempt” property, which could lead to expanded applicability of the deduction.

All in all, the changes to the Section 179D deduction are worthy of a careful read.

Section 45L tax credit

Section 45L provides a new-energy-efficient-home credit for certain eligible contractors. The IRA pushes out the applicability of the tax credit to qualified new energy-efficient homes acquired before Jan. 1, 2033 — an 11-year increase in the tax credit. The total credit can now be up to $5,000.

For single-family homes, requirements are tied to Energy Star single-family new construction program requirements, which change over the period of the tax credit. On the multifamily housing side, the applicability is tied to Energy Star multifamily new construction program requirements.

Additionally, certain prevailing wage requirements may apply; however, the statute does provide certain provisions that permit noncompliance to be fixed.

Section 45Q tax credit

Section 45Q provides a tax credit for qualified carbon oxide captured by a taxpayer at a qualified facility. The IRA extends this tax credit to qualified facilities that begin construction between Dec. 31, 2022, and Jan. 1, 2033 (which, for obvious reasons, presents a limited timing planning concern if you are in the process of commencing construction on such a facility). 

The IRA will also apply to certain carbon-capture equipment placed in service before Feb. 8, 2018. Thus, we see an expansion of this tax credit that looks to the past and the future.

The IRA reduces the minimum annual capture requirements to make the tax credit more widely available. For example, other than direct air capture and electric generating facilities, each of which has its own standard, the general rule is now a requirement the facility capture at least 12,500 metric tons per year. Anecdotally, conversations around carbon credits — and Section 45Q, in particular — have picked up. This is a provision I will be watching closely over the next months and years.

Additionally, the IRA reduces the minimum annual capture requirements to make the tax credit more widely available. For example, other than direct air capture and electric generating facilities, each of which has its own standard, the general rule is now a requirement the facility capture at least 12,500 metric tons per year.

Anecdotally, conversations around carbon credits — and Section 45Q, in particular — have picked up in recent months. This is a provision I will be watching closely over the next months and years.

IRS enforcement

The IRS received a substantial appropriation in the IRA. Although not specific to the real estate and construction industries, it is important to note that this agency, which is critical to the interpretation of our many tax provisions, should start seeing a direct infusion in terms of hiring in the very near term. 

Some may see this as a harbinger of future tax audits, and that may be true. But we should also see this as a sign that guidance for the many tax laws that have been (and will be) enacted is in the offing. And that is something from which we all could benefit.

Dan Eller is a shareholder with Schwabe, Williamson & Wyatt. Contact him at [email protected].

VSB Disciplinary Actions: Oct. 31 issue

By order entered Oct. 18, 2022, the Virginia State Bar Disciplinary Board issued a public reprimand with terms to William Hale Thompson Jr. of Arlington for violating professional rules that govern fees, safekeeping property, and declining or terminating representation. This was an agreed disposition of misconduct charges.

Woman died after pulmonary embolism — $1,653,369.86 verdict

Type of action: Medical malpractice

Injuries alleged: Failure to order DVT prophylaxis for a patient following orthopedic repair of traumatic leg injury, resulting in pulmonary embolism and death

Name of case: Lori and Danielle Norfleet, Co-Administrators of the Estate of Nicole Norfleet, Deceased v. Valley Physician Enterprise, Inc.

Court: Winchester Circuit Court

Case no.: CL21-410

Name of judge or mediator: Judge Alexander Iden

Date resolved: 8/5/2022

Verdict or settlement: Verdict

Amount: $1,653,369.86

Attorneys for plaintiff (and city): Travis W. Markley, Richard L. Nagle, James N. Knaack and Benjamin M. Wengerd, Reston

Description of case: Decedent Nicole Norfleet, a 34-year-old female, broke the tibia and fibula of her left leg when she slid off her horse on Oct. 17, 2020. She was taken to Winchester Medical Center and upon evaluation it was determined that she needed open reduction and internal fixation of the tibia and fibula. That surgical repair was completed on Oct. 19, 2020, without complication. Her remaining inpatient and outpatient post-op care was deferred to the surgeon’s PA. During her in-patient stay, the orthopedic surgeon ordered DVT prophylaxis post-operatively, which the orthopedic PA did not continue for the patient after her discharge on Oct. 21, 2020, despite her inability to timely meet her physical therapy discharge goals.

When the patient presented for her two-week post-op appointment on Nov. 2, 2020, she reported difficulty ambulating as expected. Based on that history and his in-office examination and observation, the orthopedic PA documented that the patient was at increased risk for DVT formation. Despite that, he still did not order DVT prophylaxis, but instead encouraged her to move more and to perform range of motion exercises.

Despite the decedent’s compliance with the orthopedic PA’s direction to move more and perform range of motion exercises, the patient collapsed in her bathroom on Nov. 21, 2020, and was pronounced dead upon arrival to the nearest hospital. Autopsy confirmed that she had succumbed to a massive bilateral pulmonary embolism that proliferated from the extensive DVT in her left leg.

Trial involved extensive debate between the experts over the decedent’s risk factors for DVT, including her activity level at various points and whether she was using hormonal birth control at the time of her hospitalization and the post-op appointment. The defense argued that the anticipated risks of DVT prophylaxis outweighed any anticipated benefits.

The five-day jury trial culminated with deliberations of approximately three hours before the jury awarded $1,500,000: $500,000 apiece to the parents and $250,000 apiece to the two sisters of the decedent, plus prejudgment interest from Nov. 21, 2020, the date of the decedent’s death, bringing the total to $1,653,369.86.

Plaintiff’s attorney James Knaack provided case information. [022-T-130]