Earlier this month, the United States Supreme Court ruled in Bostock v. Clayton County, Georgia that it is illegal for employers to fire employees solely for being gay or transgender. The Court’s ruling, a 6-3 decision, addresses three cases simultaneously: Bostock v. Clayton County, Georgia; Altitude Express, Inc., et al. v. Zarda et al., and R.G. & G.R. Harris Funeral Homes, Inc. v. Equal Employment Opportunity Commission et al., all of which involved an employer terminating “a long-time employee simply for being homosexual or transgender.” The opinion, authored by Justice Neil Gorsuch, grants federal protection to gay and transgender employees under Title VII of the Civil Rights Act.of 1964. The Court summarized its decision, in part:
An employer violates Title VII when it intentionally fires an individual employee based in part on sex. It makes no difference if other factors besides the plaintiff’s sex contributed to the decision or that the employer treated women as a group the same when compared to men as a group. A statutory violation occurs if an employer intentionally relies in part on an individual employee’s sex when deciding to discharge the employee. Because discrimination on the basis of homosexuality or transgender status requires an employer to intentionally treat individual employees differently because of their sex, an employer who intentionally penalizes an employee for being homosexual or transgender also violates Title VII. There is no escaping the role intent plays: Just as sex is necessarily a but-for cause when an employer discriminates against homosexual or transgender employees, an employer who discriminates on these grounds inescapably intends to rely on sex in its decisionmaking.
The decision is being hailed by many as a landmark decision, primarily since several states’ laws permitted employers to terminate employees on the basis of their gender identity and/or sexual preference, until the Court’s ruling. Employers throughout the United States now should take note of the Bostock case and ensure their policies and procedures, particularly those relating to termination, comport with the Supreme Court’s holdings. Our firm regularly represents individuals and firms in employment matters in the areas of securities and financial services, including discrimination and wrongful termination claims. If you have a situation you’d like to discuss with us, give us a call at (619) 696-9500 or look us up at https://www.shufirm.com/.
Partner Jonah A. Toleno is based in our San Diego, California office. She practices in securities and financial services law, including employment law. She acts as trial counsel and outside corporate counsel for numerous financial, business, and individual clients. She can be reached at (619) 696-9500 or [email protected] with questions.
Financial advisors (“FA’s”) at registered investment advisory firms (“RIA’s”) are facing yet another challenge atop already shaky markets. According to the June 2020 DeVoe & Co. Study Report[1] (the “Report”), owners and senior members of RIA’s are “approaching a succession crisis.” The Report notes that while the average RIA owner is in their early 60s and would prefer to pass on their loyal clientele and sell their well-established business internally, nearly 57% of surveyed RIA’s claim that a leadership transition would not only be difficult, but would create a “significant or severe challenge,” for the RIA. However, it is not too late to begin creating and bolstering a comprehensive succession plan.
Bolster Your Plans and Put Your Clients at Ease
Succession planning is the process, or “road map” of determining how the transfer of a business enterprise will occur following a “succession event” (e.g., upon the death, disability or retirement of a founder or a monetization event). Proper succession planning allows the surviving or continuing partner(s) to continue to run the business and provides liquidity to the departing partner or his or her estate. The succession plan itself will vary depending on the FA’s/RIA’s business model and should be customized accordingly. Specifically, succession plans should cover provisions which include, among other things: “performing due diligence, establishing a valuation for the firm, instructions as to transferring assets (if required), financing options, and/or determining whether additional notice filings/registrations are required.”[2]
For most advisors, their clients and book of business are the result of many years of hard work and dedication, and is typically their family’s greatest single asset. Planning for an unexpected succession is a vital part of any business and must be in place before the succession event occurs – by which time it is usually too late to put a proper plan into effect. If you have previously created a plan, it is important to dig up your old succession plan periodically and review the document to spot where it could use updating. If you’re currently operating without a formalized succession plan in place, it is important to implement a plan that identifies who will oversee servicing client accounts should a succession event occur on a short, intermediate, or long-term/permanent basis. Shustak, Reynolds & Partners, P.C. can help review your current succession plan, or develop a customized plan, that ensures your business operations continue unabated, and that you’re properly compensated should a “successn event” occur.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Partner Robert Boeche can be reached in the firm’s San Diego office at (619) 696-9500.
FINRA recently announced that Merrill Lynch will pay $7.2 million in restitution to customers overcharged on mutual fund accounts. FINRA’s enforcement action and fine affects over 13,000 separate Merrill Lynch accounts whose owners did not receive the available sales charge waivers and fee rebates available through rights of reinstatement. According to FINRA, rights of reinstatement allow investors to purchase shares of a fund after previously selling shares of that fund or another fund in the same fund family, without incurring a front-end sales charge, or to recoup all or part of a contingent deferred sales charge. The overcharges impacted customers in the aggregate amount of approximately $6 million. FINRA considers this to be a “Supervisory Failure” by Merrill Lynch.
FINRA charged that Merrill Lynch failed to establish reasonable systems and procedures to ensure that all accounts eligible to receive these sales charge waivers and fee rebates actually received them. According to the FINRA charges, Merrill Lynch relied on individual registered representatives to manually determine customer eligibility rather than using an automated system with sufficient supervisory checks and balances to ensure that every eligible account actually received the rebates and waivers. FINRA charged that between April 2011 and April 2017, Merrill’s supervisory failure lead to the affected Merrill customers paying in the aggregate approximately $6 million in excess sales charges and fees. And this was not an isolated instance of Merrill’s supervisory failure in this area. In 2011, Merrill agreed to a censure for a similar violation, $8 million in fines and approximately $24.2 million in restitution for supervision and suitability violations regarding the sales of mutual fund shares. Sometimes Merrill and other firms just don’t learn from their costly mistakes.
FINRA took Merrill Lynch’s “extraordinary cooperation” into consideration when determining the appropriate monetary sanction on the new violations. Merrill agreed to hire an outside consulting firm to identify customer accounts impacted by this oversight and calculate the total remediation. Merrill Lynch also assisted the FINRA investigation and promptly paid the restitution to impacted customers. Merrill Lynch neither admitted nor denied the charges, but consented to the entry of FINRA’s findings.
We greatly appreciate Holly Nicoll’s contribution to our firm! Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We routinely represent broker-dealers and financial advisors in arbitrations, financial advisor transitions, broker protocol disputes and related matters. Please direct any questions to our managing partner, Erwin J. Shustak, Esq. and contact us today for a confidential, complimentary consultation.
In the recent appellate case Crosno Construction Inc v. Travelers (2020), the Fourth District Court of Appeal (which includes San Diego, Orange and Riverside counties) determined a “paid when paid” contract clause, asserted by a payment bond surety as a defense to paying the claimant subcontractor, was unenforceable. This clause, found in the general contract, allowed the general contractor to delay payment to its subcontractor in the event the public works entity failed to pay the general contractor, until such time the general contractor was paid. The general contractor in Crosno sued the public entity for payment and the litigation stretched for several years. The surety adopted the clause as applicable to the payment bond and refused to pay the sub.
This issue is tied to the “pay if paid” clause, a once common contract clause, which calls for a general contractor to avoid payment to its subs should the owner not pay the general contractor. The California Supreme Court determined some time ago “pay if paid” clauses were void and unenforceable because they transferred to the subcontractor the risk of payment for work the sub performed. (Wm. R. Clarke Corp v. Safeco Ins. Co. (1997) 15 Cal 4th 882.)
The “pay when paid” clause at issue in Crosno found its footing when the subcontractor sought payment from the payment bond surety for almost $600,000.00 in unpaid work and materials. The trial court determined although it was dealing with a “paid when paid” and not a “paid if paid” clause, the question remained whether allowing the clause to be enforced would impermissibly impair the subcontractor’s statutory payment bond rights under the anti-waiver statute Civil Code 8122. The trial court found the “paid when paid” clause void and awarded the subcontractor $562,435.00 plus interest and costs.
The Appellate Court upheld the trial court’s ruling.
It determined while a “paid when paid” clause is not a true condition precedent, as is a “paid if paid” clause, it unreasonably impaired the sub’s recovery under the payment bond and therefore was “void and unenforceable.”
While the case did not directly rule on whether a “pay when paid” clause is enforceable by a general contractor against one of its subcontractors, a reasoned interpretation of this case is that its holding is broad enough to include general contractors as well as sureties.
Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. Partner James J. Reynolds can be reached in the firm’s San Diego office at (619) 696-9500 or jreynolds@shufirm.com
