A 5 Piece Presentation from the Minds of MWR Legal

Compilations of an extensive interview conducted by Jason Myers

Myth #1- Online Form Documents Make Incorporation Easy

These days, many entrepreneurs hope to get their legal structures online for cheap or for free, without realizing the inherent risks involved. There are many considerations for each unique situation when creating an entity that a form document simply cannot take into account.

If you have partners, intend to go after investment, or plan to sell your company down the road, a “form fill” document will likely end up costing you more in legal fees than you possibly could have saved by taking the cheap route in the first place. While we love the accessibility of information on the internet, there are myriad arrangements and issues among partners that a form document simply cannot cover and you may never realize until you are in hot water.

A prime example, and a recurring one, is the tale of the partner who loses interest. Entrepreneurs generally have a multitasking, furiously busy lifestyle and can only funnel so much energy into each project they are involved with. If your partner decides to be less active in the organization, and you don’t have a provision to cover it, you may be stuck paying him/her a partnership share while receiving minimal participation and support for the business.

The formation of any entity beyond a sole member LLC (which gives you some liability protection as a sole proprietor) truly deserves, if nothing more, a conversation with your attorney. Your attorney will be able to help you understand the benefits of different types of entities so that you take into account tax, fundraising, and other considerations. Spending this time with your legal advisor to discuss the relevant issues to your unique situation can be an invaluable exercise, with the benefits far outweighing the risk of initial investment.

When we meet with our entrepreneur clients regarding a partnership, we generally provide a questionnaire to fill out before the consultation. The questionnaire will immediately address certain issues that often remain undiscovered; that is, they remain undiscovered until problems occur and the resolution of the disagreement can mean the fate of the business. In these tense situations you could end up in expensive court battles or face other serious threats to your company and its people.

It is far easier to resolve these issues before things get to this point, by asking questions such as: “What happens in the event of a partner’s death?” (will his wife or children now own and control part of your company?) or “What are the duties of each partner, and what is the recourse for failure to complete these?” and “What happens if partners disagree on the direction of the business?” and so on, until a agreement is drafted for your specific reality.

This rigorous questioning has saved businesses before they even start. We were once approached by three women to build a partnership, and by the end of the meeting one of the partners realized she wasn’t going to be a good fit for the business. By parting ways in the beginning they saved themselves a lot of misery that would have been caused by the later discovery of their misunderstandings. It could have created a lot of pain and hard feelings, as well as legal fees to clean up the mess. Instead, the two other women executed a partnership agreement that worked for them.

The bottom line is this: The myth that it is outrageously expensive to have an attorney provide you with an entity that fits your unique situation isn’t necessarily true, and in the end it may be worth its weight in gold.

Visit MWR Legal to learn more about our talented legal minds and how we can help your company.

512.320.0601

The world of media, marketing and business has changed dramatically over the past decade.  The breakup of the all-powerful information delivery systems from our past – think national newspapers and television networks –has significantly leveled the playing field for small businesses. 

Now, a local business in Spokane, Washington (or Austin, Texas!) can distribute their product as well as their brand locally, nationally and even globally online.  The end result of this gigantic media shift is an increased priority on protecting and controlling your company’s image and name across multiple mediums.  Here’s why:

Websites and blogs on the internet are far more affordable advertising than was ever available on TV.  This lower cost of advertising has led to a massive number of brands being showcased online, emphasizing the importance of a company having a clear and concise brand.  The previously singular powerhouses of information have been replaced by social networks and personal interaction.  And as more and more venues for sharing information are created, users spend less time on each different one.  The average internet user spends less than thirty seconds on a page, and rarely reads more than 50% of the language.

To guarantee that they reach their target demographics, advertisers are forced to spread their brand across multiple channels and through as many means as possible.  The intense competition inspired by millions of businesses on the internet and the huge array of competing company logos and trademarks in advertising across the net has made it especially crucial to create a memorable, distinctive mark, and then to protect it!

This explosion of branding in the digital age has raised the value of an established mark.  Brand recognition through a well-targeted campaign can put a small company on par with giant corporations.

At MWR Legal we understand how your brand translates to real revenue in your bank account.  That is why we help you identify and prioritize your company’s most important possible trademarks, and then perform in-depth research so you know whether you can protect them.  We can help you understand and then structure licensing deals with third parties, and we keep you out of harm’s way to make sure your corporate name, product and/or service names, and logo don’t infringe on a mark owned by another company.  We help you capture and protect the value you’re building in your brand.

MWR Legal’s attorneys have successfully obtained many trademark registrations.  We have protected our clients’ intellectual property with creative arguments and effective strategies in industries ranging from real estate to salsa.  Our attorneys can help you secure your mark, enforce it against infringers, litigate to protect it, and strike deals to monetize it. 

Contact MWR Legal at 512.320.0601 or visit www.mwrlegal.com if you feel like your intellectual property could use some protection.

Matt Burr

Intellectual Property Counsel

MWR Legal is proud to congratulate our friends, Austin locals Ray and Bertrand Sosa, on their nomination by Bloomberg Businessweek as two of the top social entrepreneurs in the country.  The brothers founded MPower Ventures in 2006 and continue to fuel its growth to the top of an underserved sector- banking services for the low income bracket.

MPower Ventures boasts a homegrown four company portfolio all offering global financial services for those with low income and little or no savings.  Worldwide, these four companies serve more than one million customers, and give consumers in developing countries access to immediate funds where none were available before.  The Sosa brothers are improving the lives of many around the world, and they are growing and profiting in the process.  So far they have raised around $100 million in investment and hope to double that amount in the future.

We hope you take 30 seconds or less and cast your vote for Ray and Bertrand as “America’s Most Promising Social Entrepreneurs” here.  We did, because MWR Legal supports local businesses and local entrepreneurs.

MWR Legal is dedicated to supporting the local entrepreneur community through giving.  We give our time, energy, passion, and we dedicate our resources to clients in order to help them succeed.  Call us for legal advice, business guidance and counseling, or simply to hear our informed opinion on your newest and most brilliant idea.

Sincerely,

Shari A. Wynne

MWR Legal

A Clear Path to Success

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When you decide that your business needs to raise money, and you decide to approach outside investors, there are some critical legal issues that you should be aware of.  After 32 years of legal experience and working on well over 100 private and public offerings, I have observed that certain issues often get missed, even by the sophisticated investor.  There are many important considerations, and certainly more than 5 legal “things to consider”, but here are the ones that seem to recur.

To begin, let me state the obvious.  If you accept money from a third party in return for equity in your company, then you are selling a portion of your company for less than you expect it to be worth in the (near) future.  If you were able to get to the same place without outside money, you could sell the equity later for a much higher price.  While an influx of cash may be the stepping stone you need to get your business to the next level, it may be more costly than you wish.  In some cases, accepting slower growth while keeping all of the equity may be the better approach.

The first legal risk often overlooked is the necessity of compliance with the securities laws.  Some people consider the term “securities” to cover just stock. However, both federal and state laws define security to include limited liability and partnership interests, (promissory) notes, debentures and other evidence of debt, as well as many additional instruments.  If you have a security, you must either register it with federal and state authorities, or find an exemption in the often complicated federal and state securities laws.   Many people talk about raising money from “friends and family,” but this does not immunize you from liability under the securities laws.  If you proceed without an exemption, you can only trust that your uncle or best friend is unlikely to sue you if things don’t work out, because technically they have the legal ability to do so.   Unfortunately, there are cases where this trust is not borne out.

What happens if you don’t register or qualify for an exemption?  You may have to pay back the investor, plus interest, possibly from your personal funds if the company is unable to do so.  Fortunately, there are ways to be sure that your capital raising activities are covered by an appropriate exemption, particularly if your investors are accredited (as defined by the SEC) and sophisticated.  However, you should always hire a securities attorney to be sure that you have qualified for these exemptions.

Next, make certain your legal documents are in order.  This is true whether or not you raise money, but sophisticated investors will want to review all of your documents before investing.  This will include basic corporate documents (certificate of incorporation or formation, bylaws, and board and shareholder resolutions), agreements with employees and independent contractors, and shareholder agreements and other agreements affecting ownership of the company.   Pay particular attention to red flags like unsigned agreements, lack of agreements with key employees and contractors, and oral agreements to provide equity.  In some situations, where no promises are made but someone is helping you out for no charge, there can be an implication that he or she is expecting equity compensation.  This will be of concern to potential investors, who will need to know the full ownership structure before they invest.

Thirdly, choose your investors wisely, and understand what role they intend to play in the company.   You may want the good advice and the contacts that an investor can bring to the table.  However, if you like to be in complete control and became an entrepreneur so that you would never have a “boss” again, the advice and connections may come with a very large price.  Be sure you are on the same page with your investors about their role in the company.  Two other things to consider:  1. Returning to the paragraph on securities laws, you will save time and reduce legal risks if all of your investors are wealthy, sophisticated investors with experience in investing.  It is easier to find an appropriate exemption when doing business with this type of investor, and there will be fewer required disclosures.   2.  Be aware of the states (and countries) of residence of your investors.  Most states have securities laws that protect their residents, and if one of your investors lives in, say, Arizona, your counsel may need to check the securities laws there as well as in the state in which you and your company are located.

The fourth recommendation is to create a term sheet early in the negotiation process with investors.  The valuation of your company, the ownership percentages, the restrictions on your right to sell shares, and who has the power to vote and control the company are all matters that will be included in the term sheet.  Many entrepreneurs are surprised to learn that what some investors consider “standard” terms seem to be quite harsh to the entrepreneur.  It is far better to learn this near the beginning of negotiations so that you can determine whether there is a potential deal with these investors or not.  If the investors present you with a term sheet, it is important to have your own counsel review it before you sign on.  Be sure to distinguish which parts of the term sheet, if any, are binding (such as your obligation to pay investors’ legal fees, or any exclusivity period you have to give investors before turning to alternate sources of money).

Last but not least, make sure your company’s assets are protected.  Protect your intellectual property through patents, trademarks and copyrights as appropriate, and consider trade secret protection for matters where a patent (for cost or strategic reasons) is not the way to go.  Always consider whether or not to ask for a non-disclosure agreement before disclosing important sensitive information about the company, whether in contract negotiations or in due diligence proceedings by investors.  Many investors are reluctant to sign these, but may consider doing so in an appropriate case.  If they do not, you must realize that what you tell investors will not necessarily be held in confidence.

I hope that these five warnings will help start-ups, small businesses, and my fellow entrepreneurs make wise decisions when financing their growing companies.  I wish you all the best of luck!

Subscribe to the Springboard Blog to receive MWR Legal’s regular tips, support, and updates for entrepreneurs, including (coming soon) more ways to protect yourself when requesting and receiving funding.

Please Contact Us if you need advice or representation for a specific legal matter.

Rick Ressler of MWR Legal has over 32 years legal experience in the corporate and securities areas. Visit MWRLegal.com to learn more about Rick and the firm.

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The materials available at this web site are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem.  The opinions expressed at or through this site are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney.

Drifting snow, chiming bells, and rosy cheeks mark the beginning of our merry holiday season.  And many businesses anticipate the greatest holiday gift of all: the economic outlook has begun to turn rosy as well.

Economists and CEOs alike foresee an increase in sales and a growth in capital during 2010. However, while companies plan to rake in more cash next year they don’t necessarily plan to hire new help. According to Business Roundtable Quarterly, large corporation CEOs anticipate a year of healthy economic expansion but not a resurgence of hiring.

The year 2010 may find millions of recently unemployed Americans still struggling to find a place on the corporate payroll.  But many of these displaced business men and women will forgo the job search in order to seize a different opportunity: they will become entrepreneurs in a burgeoning economy, creating lucrative opportunities for themselves and others during a year of fiscal growth.

Austin, Texas is a hotspot for entrepreneurs for several reasons. It is the third fastest growing small business community with more than 30,000 small businesses (CNN Money). While the city of Austin is large and full of opportunity, its residents stay true to local brands and local businesses. Austin ranked as the #4 Best City to start a small business according to bizjournals.com, thanks to its business friendly tax structure, availability of financing, and robust and skilled labor pool.

While Austin may sound like a winter wonderland for building and growing a business, this doesn’t make it a simple process.  In a city where great ideas are constantly emerging, protecting your intellectual property becomes exceptionally important.  Gaining access to investment requires a great idea, a detailed plan, a “WOW” pitch and a network of interested investors.  And then successfully managing and growing your business requires dedication, hard work, and sometimes even a little extra help (Santa has elves for a reason).

A report by Dun and Bradstreet estimates that companies with fewer than 20 employees have a staggeringly low 9% probability of surviving ten years in business.  MWR Legal is a law firm dedicated to helping entrepreneurs and executives join this elite 9%.

We have years of experience helping myriad companies throughout all stages of their businesses – from the initial launch to perfecting pitches for investment, avoiding litigation to maximizing rapid growth (of clients, income and employees) and ultimately selling the business.

Please check out some of our success stories or simply call us to talk with our Director of Client Relations. We would love to discover how we can help you unwrap your own Entrepreneurial Gift and start, grow, and protect your business! 

Happy Holidays and best wishes to Entrepreneurs everywhere!

Contact Us

MosterWynneRessler
512-320-0601

We are proud to announce that a radio musical written by the firm’s Senior Partner Charles Moster will be featured this Sunday, September 13 at 11am on KUT’s (90.5FM) The Best of Public Radio.  The one act radio musical is entitled “Taken: How will they be remembered?” and provides a very personal depiction of the 9/11 tragedy.

“Taken” follows the life of Drew and Jenny, two young investment bankers whose life together begins and ends at the Twin Towers, along with several other characters. The music and and lyrics are melodic and touching and add a unique and special dimension to the story.

Please join us in listening to this tribute on Sunday morning at 11am on 90.5FM.  The piece will also air on Friday, September 11 at 6pm on Digital KUT2.

Very best,
Adam

www.mosterwynne.com
(512) 320.0601

One of the most fascinating and controversial legal decisions in the field of intellectual property is coming to a computer near you!  Charles Moster, the firm’s Senior Partner and writer/composer of several radio musicals on NPR, is releasing his latest on August 31st.  It is about the life of the brilliant Serbian inventor, Nikola Tesla, who invented radio and had a landmark Supreme Court case! 

Entitled Tesla vs. The United States, it tells the story of how political and economic pressure unfairly influenced a major decision by the U.S. Patent and Trademark Office (PTO).

Tesla invented radio, filed his application for the device with the PTO in 1897 and was granted a patent in 1903.  Subsequent to the filing, Italian inventor Guglielmo Marconi incorporated one of Tesla’s inventions – the “Tesla Oscillator” – to transmit the first radio signal across the Atlantic.  Marconi received enormous press attention and praise and erroneously promoted himself as the inventor of radio.  Marconi then tried to patent his radio device in 1900 but was declined by the Patent Office as it was based on the Tesla Oscillator.

Unfortunately, the rising value of Marconi’s financial interests in his wireless company and the support of such luminaries as Thomas Edison and Andrew Carnegie gave Marconi the political muscle to reverse the decision of the PTO in 1904.  The decision was inexplicable and contrary to its prior decisions and patent holdings.  To add insult to injury, Marconi was awarded the Nobel Prize in 1911 for the invention of radio!

It was not until 1943, shortly after the death of Tesla, that the U.S. Supreme Court reversed the unfair decision of the Patent Office.  Charlie’s radio play presents a musical accounting of this pivotal legal decision.

You can access the play online at www.noirdame.com during the premier on August 31st.  Charlie’s collaborator of many years, Adam Donmoyer, arranged the music, directed the play, and wrote the title song. Charlie wrote the book, music, and lyrics.

Don’t miss it!

www.mosterwynne.com
(512) 320.0601

Trademarks are used to protect a name, word, or symbol that is used for the purpose of identifying the source of goods or services.  Many economists have shown the direct relationship between the increasing importance of branding and the value of securing your IP - a lesson that the “Octomom” has clearly not missed!

According to CNN, the Smoking Gun and a number of other news sources Nadya Suleman, aka the “Octomom”, has recently filed two trademark applications and wants to put her moniker on television programs, clothing and disposable and cloth diapers. 

Here is what the Associated Press reported:

(04-15) 21:58 PDT LOS ANGELES (AP) –

“Octomom,” the nickname that has dominated headlines for nearly three months, could belong to Nadya Suleman alone.

The mother of octuplets wants to trademark her moniker and filed two applications with the U.S. Patent and Trademark Office on April 10.

The applications said Suleman wants to put the Octomom name on television programs, clothing and disposable and cloth diapers.

The octuplets’ birth on Jan 26 was heralded as a medical miracle, but the public’s fascination with Suleman quickly soured as details of her life emerged. The divorced and unemployed mother has six other children at home; she has said all 14 children were conceived through in vitro fertilization.

Tabloids called her the “Octomom” and the name stuck.

Suleman’s attorney, Jeff Czech, said two people have approached him with suggestions for products like children’s clothes and dolls.

“She doesn’t particularly care for the name but she thinks it’s a good idea to protect it,” he told The Associated Press on Wednesday. “She has a sense of humor about it.”

Czech said a Texas-based video game company called Super Happy Fun Fun, Inc. also filed a trademark application for the name. Its Web site describes a game in which players “press down on Fertyle Myrtle’s swollen belly, and another adorable bundle of joy will be brought into the world.”

The company filed its application about a month ago and did not ask for permission, Czech said. Typically, the first person to file an application receives the right to use the name, he added.

“But in this case, it’s more than just the name. It’s become a person,” he said. “When it becomes so associated with a name or a person, it is protectable.”

While it’s hard to get past the sensationalism, the Octomom’s situation does raise some interesting issues regarding trademark law ”best practices”.  For example, the story alludes to the importance of being the first to file your trademark application. 

You might not be on the cover of People Magazine or US Weekly but have you done everything that’s necessary to protect your brand?

www.mosterwynne.com
(512) 320.0601
Matt Burr is Intellectual Property Counsel of MosterWynne, a national corporate law firm headquarted in Austin that helps entrepreneurs and executives build their businesses.

As a health and benefits plan (ERISA) attorney, I want employers to understand that separation notices and the amount employers are now required to pay must change.  While there are tax credit reimbursements your cash flow will be impacted and you need to be prepared.  
 
As a business owner, I think significant change needs to be made to our health care system to take the burden off of employers.  This recent legislation does not address the core issue: that the costs of health care are exorbitant and companies, both small and large, are searching for a way to free themselves from this extraordinary burden.  

Our own insurance advisor, Cuatro Groos, has laid out the details of the new health care legislation in the article below. It’s lengthy but full of important details. 

Please feel free to contact me or Cuatro if you want to discuss these or any related issues.

Sincerely,
Shari

An Overview of COBRA and State Continuation Assistance Under The American Recovery and Reinvestment Act of 2009
By Cuatro Groos, MBA, MPAff, CIC
http://www.cuatrobenefits.com/

What is the Premium Subsidy?
While the debate over long-ranging health care reform in the United States heats up in Washington, American companies and thousands of Americans laid off in recent months are scrambling for options to maintain their insurance coverage.  Many are not aware of the subsidies passed in February by Congress as part of the stimulus package to help recently laid-off workers maintain their employer-based coverage.  

Under the American Recovery and Reinvestment Act of 2009 (ARRA), eligible individuals pay only 35 percent of their COBRA premiums and the remaining 65 percent is reimbursed to the coverage provider through a tax credit.  This premium reduction applies to periods of health coverage beginning on or after February 17, 2009 and last for up to nine months for those eligible for COBRA between September 1, 2008 and December 31, 2009.  

In states such as Texas, where state “min-COBRA” or state continuation programs exist for employers whose groups contain less than 20 employees, the subsidy also applies for the length of continuation for that state’s program to a maximum of nine months.  In the case of Texas, that period is six months.

On the whole, the COBRA premium subsidy provides sorely needed short-term relief for people most directly impacted by the economic downturn – if they know about it.  These provisions, like the entire stimulus package, were written hastily.  They place quite an administrative burden on employers, regulators, and carriers. 

It took months to get decent model notices and guidelines in place.  As a result, many employers have done a poor job of making laid off workers aware of the provisions.  As an insurance broker, I find myself convincing such individuals that I should not be selling them an individual policy as an alternative to COBRA before they verify whether they are eligible for the subsidy.  The majority of people that come to us are unaware of the program.

What Plans are Subject to the Premium Subsidy?
The COBRA premium reduction provisions apply to:
• All group health plans sponsored by private-sector employers or employee organizations (unions) subject to the COBRA rules under the Employee Retirement Income Security Act of 1974 (ERISA)
• Vision-only, dental-only, and “mini-med” plans offered by employers subject to COBRA rules under ERISA
• Plans sponsored by State or local governments subject to the continuation provisions under the Public Health Service Act
• Plans in the Federal Employee Health Benefits Program (FEHBP)
• Group health insurance plans that are required by State law to provide comparable continuation coverage (such as “mini-COBRA”)

What Do Employers Need to Know?
Plan administrators must provide notice of the premium subsidy to all individuals with a COBRA qualifying event between September 1, 2008 and December 31, 2009.   They can provide this notice separately or along with their standard COBRA forms.  Employers were required by mid-April to provide notice and a special election period to those whose qualifying event happened before ARRA was passed.

In the case of employers of firms with fewer than 20 employees in states such as Texas that have state continuation programs, employers are only required to provide notice for employees whose qualifying events occur on or after February 17, 2009. The Department of Labor has posted model notices for employers.

Employers have the option but not the obligation to allow eligible individuals to select a lower cost plan alternative to their existing plan if there is one at the time of enrollment in COBRA or State Continuation.

Documentation and Filing Requirements for Employers Subject to COBRA Rules
Employers subject to COBRA rules (or the companies hired to administer COBRA for them) are required to pay the 65% subsidy for eligible participants.  On a quarterly basis, these employers can file for reimbursement through their quarterly federal tax return.   

Although employers do not have to file anything else with the IRS for reimbursement on subsidies paid by the employer, it is important that they keep the following information on file to support the claims made on their tax reports:

• Information on the receipt, including dates and amounts, of the assistance eligible individuals’ 35% share of the premium
• In the case of an insured plan, copy of invoice or other supporting statement from the insurance carrier and proof of timely payment of the full premium to the insurance carrier required under COBRA
• In the case of a self-insured plan, proof of the premium amount and proof of the coverage provided to the assistance eligible individuals
• Attestation of involuntary termination, including the date of the involuntary termination (which must be during the period from Sept. 1, 2008, to Dec. 31, 2009), for each covered employee whose involuntary termination is the basis for eligibility for the subsidy
• Proof of each assistance eligible individual’s eligibility for COBRA coverage at any time during the period from Sept. 1, 2008, to Dec. 31, 2009, and election of COBRA coverage
• A record of the SSN’s of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.

Documentation Requirements for Employers Subject to State Continuation Rules
For employers with 19 or less employees on their employer sponsored health plans, requirements are slightly different.  In states where state continuation or “mini-COBRA” provisions exist, insurance carriers have generally agreed to pay the 65% continuation premium subsidy for eligible participants and file for credit with their quarterly tax reports.  Employers, however, are being required to provide notice to eligible terminated employees as well as documentation on participating individuals to the carriers (see the list above for examples of the information carriers need).  Carriers are currently checking to be sure whether certain small employers with close to 20 employees are subject to COBRA or State Continuation rules.  Small employers should consult their carrier or agent for information on their carrier’s specific requirements.

Penalties for Non-Compliance
Employers subject to COBRA rules face the same penalties for non-compliance with the new subsidy provisions as with other COBRA rules- up to $100 per employee per date of non-compliance.  It is not as clear what, if any, penalties exist for non-compliance on the part of employers subject to state continuation rules in various states.  ARRA does not apply to individual states’ rules, so each state is on its own to draft and enforce rules on the matter.

Who is Eligible?
Anyone that was involuntarily terminated, became eligible for COBRA between September 2008 and the end of 2009, and elected COBRA is eligible for the premium subsidy to be applied to premiums on or after February 17, 2009.  Employers subject to COBRA were required to give all employees that became eligible since September 2008 but waived COBRA another chance to enroll in COBRA with the subsidy starting March 2009.  For the purposes of HIPAA and pre-existing condition waiting periods or exclusions, the amount of time such a second chance COBRA enrollee went without coverage before joining COBRA does not count against them. 

Even if the employee initiated the termination, it still might be considered “involuntary” and eligible for the subsidy.   According to the IRS notice on eligibility, this is the case “if the termination from employment constitutes a termination for good reason due to employer action that causes a material negative change in the employment relationship for the employee.”  In other words, if you quit because you were about to be laid off, you might still be eligible.

Who is Not Eligible?
The Department of Labor states, “those who are eligible for other group health coverage (such as a spouse’s plan) or Medicare are not eligible for the premium reduction.”  Moreover, for those individuals with modified adjusted gross income of $145,000 or more ($290,000 for those married and filing jointly), any subsidy received will have to be paid back to the IRS in full.  For those individuals with modified adjusted gross income between $125,000 and $145,000 ($250,000 and $290,000 for those married and filing jointly), the amount of premium to be repaid to the IRS is prorated.

Denials
In some cases, employees have been denied the ARRA COBRA Subsidy.  One major employer in Texas has denied the COBRA subsidy to terminated employees over the age of 50 on the grounds that they had access to other group plans and waived those options.  The employees had been offered and waived out of special retiree benefits plans in favor of COBRA on their regular employee plans.  The retiree benefit plans, ironically, were far more expensive than COBRA for such terminated employees.  It could be argued that denying such employees access to the subsidy runs contrary to the spirit of the law.   In plain English, it’s kicking older laid off employees while they’re down.  Employers have been encouraged by officials to err on the side of the employees when in doubt, and there could be legal challenges in cases such as this. 

For individuals who are denied the subsidy, there is recourse through the Department of Labor.  According to DOL, such individuals “who are denied treatment as assistance eligible individuals and thus are denied eligibility for the premium reduction (whether by their plan, employer or insurer) may request an expedited review of the denial by the U.S. Department of Labor. The Department must make a determination within 15 business days of receipt of a completed request for review.”   

What Should You Do if You’ve Been Laid Off?
If you’ve been involuntarily terminated from your job, first be sure that your employer has provided you with notices and election packets for COBRA.  In the case of employers with fewer than 20 employees in states such as Texas, look for state continuation packets.  If there is no mention of the premium subsidy in your notice, contact your former employer to find out why.  If you’ve been denied the subsidy, remember that you can request a quick review by the Department of Labor.

Alternatives to COBRA and State Continuation
If you don’t qualify for the subsidy, you cannot afford the subsidized COBRA/continuation premiums, or you’ve run through the full subsidy period, there are other options out there for health insurance and other lines of coverage.  After the full run of allotted time on COBRA, people in states such as Texas can often apply for state continuation if they still have no access to another group plan. 

If COBRA or state continuation rates are too expensive, you can also explore a spouse’s group or individual plan, individual health insurance, or temporary health insurance.  In cases where one cannot qualify for any group or individual plan, many states offer state risk pools as a carrier of last resort.  Consult a qualified insurance agent for advice on all your options.

Helpful Links
Department of Labor’s resource site for COBRA Continuation under ARRA for fact sheets, FAQs, and Model Notices:
http://www.dol.gov/ebsa/cobra.html

National Association of Health Underwriters’ Advocacy Page with ARRA Info:
http://www.nahu.org/legislative/COBRA/index.cfm

IRS Bulletin 2009-27 with info on ARRA COBRA Subsidy Program:
http://www.irs.gov/irb/2009-16_irb/ar09.html

IRS COBRA Health Insurance Continuation Premium Subsidy Info Page for Employers:
http://www.irs.gov/newsroom/article/0,,id=204505,00.html

www.mosterwynne.com
(512) 320-0601

Bankruptcy is not a process that should be feared by the American people – or by General Motors.  Sometimes it acts as a grim reaper.  Sometimes it has the power of the Phoenix allowing failed businesses to rise from their ashes.  But always it is the great equalizer which is precisely what Congress intended.

So why are GM and the country so afraid?  The answer appears to be very straight forward – loss of the company and the attendant jobs.  That’s arguably never a good thing. 

Consequently, in our bailout driven economy, there is much talk of the Treasury, a/k/a Santa Claus, waiting on the scenes for yet another golden delivery.  The great Greek playwrights had a most descriptive word for this process – deus-ex-machina, which means “chariot from the heavens”. 

In all of the amazing Greek dramas or comedies, mere mortals would run afoul of the Gods and get themselves into an intractable jam.  Brilliant playwrights the likes of Aristophones and Euripedes had no answer.  To keep the masses satiated and calm, a great mechanical chariot would descend from the ceiling of the theatre replete with an appropriately empowered and costumed God to resolve the crisis, and always successfully.  That was the power of the dues-ex-machina.

Unfortunately, there is no golden chariot available in a Chapter 11 bankruptcy reorganization.  I say this having been involved in some of the largest failed bankruptcies in the US, ranging from the steel industry to massive real estate conglomerates. 

Simply put, the purpose of Chapter 11 is to allow the honest and viable debtor to reorganize, with major emphasis on the words so noted.  Although there is much displeasure with GM’s management, no one as of yet has called their honesty into question.  The latter is the great concern.

At the heart of Chapter 11 bankruptcy is the legal requirement that the debtor propose a restructuring plan which is viable.  In bankruptcy jargon, according to the courts that means there is a reasonable prospect of a plan which can be successfully approved by the court and creditors.  On either side of this equation hangs the grim reaper and Phoenix, respectively. It’s up to the bankruptcy judge and creditors to make the fateful choice.

GM can make a good case for reorganization under Chapter 11.  But it will take more than a winning argument to persevere.  GM must demonstrate that it is worth saving.  Bottom line, the Chapter 11 bankruptcy process will allow the Debtor to rid itself of non-performing assets, product lines, and the like.  The juggernaut of Chapter 11 will require that labor contracts be adjusted downward so that all creditors have a chance to be paid and the debtor has a glimmer of hope at the end of the survival spectrum. 

But here’s the big question – is there gold at the end of this rainbow?  As a bankruptcy attorney involved in the government’s first TARP-like program to save the ailing U.S. steel industry and the attendant chapter 11’s which followed, I am entitled to weigh in on this issue. 

Bankruptcy was able to save some but not all of the steel factories. Unfortunately, decades and decades of mismanagement, failure to initiate modernization of facilities, and protectionist policies which rendered these steel producers unable to compete in the global market (emphasis on the Japanese steel industry), could not be overcome by the supposed magic of Chapter 11. 

The government lost 100’s and 100’s of millions, the companies reduced debt, and made some attempt to restructure.  It didn’t work.  Our legal system cannot force corporations to adopt more innovative financial models.  The steel industry was a relic of the 19th Century Industrial Revolution and could not reinvent itself.  Many of the same companies re-filed for Chapter 11, had further reductions, and still limp along today. 

Thousands of jobs have been eliminated over the decades and not replaced.  The steel belt is evidence of that – a fossilized relic of what once was.   Entire regions of the country know all about recession as they have been in that condition for decades.

And that is the lesson for General Motors.  I am all for this corporation taking the Chapter 11 leap and let the cards fall where they may.  Bankruptcy is the great equalizer and it is now time to turn its attention to the auto industry.

Please don’t misunderstand.  I am not cruel or callous in my calculation and absolutely want hard workers and their families to avoid hardship.  However, it is up to GM to demonstrate that it can rise from the ashes of horrific decisions and once again be a viable business. 

If it cannot, its divisions should be (and will) be liquidated.  In our competitive free market system, a new automobile industry will emerge from this vortex creating new technologies and viable/lasting employment for American workers.  In such a milieu, I can envision another Bill Gates or Michael Dell ready to launch a 100% non-fossil fuel vehicle that could amaze and capture world markets.  Watch out Toyota!

Moral of the story… the GM debacle has many of the elements of a Greek Tragedy.  However, in this new versions, sans the deus-ex-machina. 

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Charles Moster is Senior Partner of MosterWynne, a full-service Legal Consultancy law firm that helps build businesses.