Financial institutions and other types of businesses that are covered by federal affirmative action obligations have some major changes for which to prepare. Financial institutions should be aware, both for themselves and their business clients, that the Office of Federal Contract Compliance Programs (OFCCP) has issued two new rules which take effect March 24, 2014. The new rules expand the affirmative action requirements for covered veterans and disabled persons.
For more than 30 years, regulations under the Vietnam Era Veterans Readjustment Assistance Act of 1974 (VEVRAA) and Section 503 of the Rehabilitation Act of 1973 have required covered employers to engage in good-faith efforts to recruit and employ covered veterans and disabled persons. The requirements include the obligation to invite applicants and employees to “self-identify” as a veteran or disabled person and to take additional affirmative action measures. Contractors with more than 50 employees and covered contracts that exceeded certain trigger limits also must prepare annual written affirmative action plans (AAPs) for veterans and disabled persons. However, until now, there was no obligation for employers to develop and retain hiring and other employment data or to set numeric goals for employment of veterans or disabled persons, as is required in the affirmative action rules for minorities and females. Continue Reading
A recent change to Ohio’s agricultural lien law clarifies the interplay between security interests governed by Article 9 of the UCC and those governed by Ohio’s agricultural lien statutes, and confirms the ruling of the Sixth Appellate Court of Erie County in Ohio Dept. of Agriculture v. Central Erie Supply & Elevator Association, 2013-Ohio-3061.
Central Erie Supply & Elevator Association (Central Erie) operated a grain elevator that it used to receive grain and other commodities from farmers (known as “claimants” under the statutory scheme) and sell the commodities to third parties. This made Central Erie an “agricultural commodity handler” under Ohio Revised Code Chapter 926. Pursuant to ORC § 926.021(C), the claimants who provided commodities to Central Erie retained a statutory lien on the commodities until they were paid. Continue Reading
In its Oct. 30, 2013 decision in General Electric Capital Corporation v. Tartan Fields Gold Club, Ltd., et al., 2013-Ohio-4875, the Fifth District Court of Appeals made clear that a lender does not waive its right to enforce its rights upon the borrower’s default merely entering into negotiations to restructure a loan; the court further held that the lender’s enforcement of its default rights during negotiations is not an act of bad faith. The court also relied on longstanding Ohio precedent that without more, a lender does not have a fiduciary relationship with a borrower.
In 2007, Tartan Fields Golf Club, Ltd. borrowed $13.3 million from GECC and secured the loan with a mortgage on its Delaware County golf course development. When Tartan Fields approached GECC in early 2009 about renegotiating the loan, GECC required that Tartan Fields sign a “Pre-Negotiation Agreement” that provided, among other things, that Tartan acknowledged that GECC had no fiduciary, confidential or special relationship with GECC; the Pre-Negotiation Agreement also gave both parties the unilateral right to terminate negotiations with three business days’ notice to the other party in their sole discretion and contained an integration clause. Continue Reading
The Ohio Department of Taxation recently released draft administrative regulations (the “Regulations”) designed to implement the new Ohio financial institutions tax. The new tax takes effect Jan. 1, 2014 and replaces the corporation franchise tax and dealers in intangible tax, which financial institutions have historically paid in Ohio.
The Regulations state that the tax has been designed based upon two fundamental concepts:
- The tax return will be reported on a consolidated basis at the highest level of ownership rather than on a separate entity basis.
- The equity of the consolidated reporting group will be based upon generally accepted accounting principles reported to the appropriate federal regulatory agency rather than on a federal income tax basis.
The most significant aspects of the Regulations deal with how financial institutions will file tax returns to pay the tax. Bank organizations that are owned through a holding company structure will report the equity of the holding company and all of the entities over which the bank holding company exercises significant influence on a form called an “FR Y-9.” A financial institution that is required to file the FR Y-9C pursuant to Federal Reserve Board regulations will instead report the total equity capital from its FR Y-9C on its Ohio financial institution annual tax return. Continue Reading
Businesses active in Ohio’s current oil and gas boom should be aware of how oil and gas leases are treated in bankruptcy. Unsettled Ohio law regarding whether a debtor owns unextracted oil and gas as part of the debtor’s real property can make this a difficult issue. This eBook discusses recent court opinions and examines the question of just who owns unextracted oil and gas in a bankruptcy context. Download Oil and Gas Leases in Bankruptcy.
Secured lenders extending financial accommodations to borrowers whose collateral includes perishable food items should consider certain specific risks associated with such collateral. Notably, the Perishable Agricultural Commodities Act of 1930 (PACA) creates a statutory trust for the benefit of persons who originally sell the perishable agricultural commodities to such borrowers and are not paid. The PACA trust creates a tier of claims that “float above” the secured lenders’ priority interests in the perishable agricultural commodities. Thus, until all suppliers of perishable agricultural commodities to a borrower are paid in full, a secured lender’s security interests in the borrower’s collateral consisting of perishable agricultural commodities or the proceeds thereof are trumped by the sellers’ PACA claims. Types of borrowers whose collateral may be subject to these PACA statutory trusts include restaurants, grocery stores, or any other businesses that deal with perishable agricultural products.
The burden is on the borrower/PACA debtor (as opposed to the beneficiary of the PACA trust) to establish that the subject assets (including inventory and accounts receivable) are not PACA trust assets. See Sanzone-Palmisano C. V. M. Seaman Enterprises, 986 F.2d 1010 (6th Cir. 1993) (finding that the PACA debtor had the burden of proving the assets producing the commingled proceeds were not produce or related assets and thus not subject to a PACA trust). In certain instances, a lender may be able to avail itself to the bona fide purchaser defense and thus avoid the “floating” PACA claims. However, case law in this area makes it clear that in order to prevail on this issue, a lender must establish that it acquired the subject assets without knowledge of the “floating” PACA claims only after such lender conducted a thorough investigation into the matter. Courts hold that a thorough investigation generally requires the lender to contact all potential sellers within the sale and distribution channels. See Consumer Produce Co. v. Volante Wholesale Produce, 16 F.3d 1374 (3d Cir. 1994). Continue Reading
In this hypothetical, we will consider the following circumstances.
- “Farmer Bob” grows wheat (i.e., crops)
- “AgBank” has loaned Farmer Bob money secured in part by his wheat
- “Massive Grain Elevator” wants to purchase Farmer Bob’s wheat
Can Massive buy the wheat and not get the shaft from AgBank? It depends. In 1985 Congress passed the Food Security Act; the provision 7 U.S.C. Section 1961, titled Protection for Purchasers of Farm Products (FSA), constitutes a wholesale preemption of the Uniform Commercial Code (UCC). UCC Revised Article 9-320(a) provides that:
“a buyer in ordinary course of business, other than a person buying farm products from a person engaged in farming operations, take free of a security interest created by the buyer’s seller, even if the security interest is perfected and the buyer knows of its existence.”
In addition, Official Comment 4 to 9-320(a) provides that:
“this section does not enable a buyer of farm products to take free of the security interest created by the seller … however, a buyer of farm products may take free of a security interest under Section 1324 of the Food Security Act of 1985, 7. U.S.C. Section 1631″
Meanwhile, FSA Section 1324 provides that notwithstanding Article 9 of the UCC, farm product buyers, commission merchants and selling agents (buyers in ordinary course) take free of security interests in farm products created by sellers unless one of two exceptions applies: 1) direct notice or 2) special central filing. Continue Reading
In a triumph of substance over form, on August 22, 2013, the Tenth Appellate District Court of Appeals disregarding self-serving labels and further clarified the distinction between a loan and a sale of accounts receivable in Fenway Financial, LLC dba Commission Express v. Greater Columbus Realty, LLC dba Keller Williams Greater Columbus Realty, LLC, No. 12AP-291. To cut to the chase, the Court found that regardless of the buzz words used, leaving the seller of an account receivable with the risk of collectability is a key factor in characterizing a transaction as a loan, not as a sale, and may implicate state loan licensing requirements and other statutes, including provisions dealing with the scope of UCC Article 9.
When the new capital rules were issued this summer, there was no dearth of comment and analysis. The federal banking regulators took pains to emphasize how community bankers were treated and much of the 971 page release parsed the distinctions between “advanced approaches” organizations and community banks.
In general, the basic conclusion is that the community banks could have done much worse, although there are a number of critical concerns that remain. Here is an outline of how some of the important issues under the final Basel III Rules were resolved:
When a person “pays” a debt with a fictitious check, someone other than the bad guy usually ends up losing. The Sixth Circuit Court of Appeals recently addressed such a situation in White Family Cos., Inc., v. Slone (In re Dayton Title Agency, Inc.), Case Nos. 12-3265;3359, July 31, 2013. In Dayton Title, the accused bad guy was Krishan Chari. Chari operated a real estate business in which he bought and sold commercial properties.
Those purchases were often accomplished through the use of short-term bridge loans. In September of 1999, Chari received two such loans totaling approximately $4.8 million which were intended to enable him to complete the purchase and sale of a specific property. The loans came due on Oct. 3, 1999, and Chari gave checks to repay the two creditors. Unfortunately, the checks were dishonored for insufficient funds. Chari then wrote a new check that was payable to Dayton Title Agency (DTA). DTA deposited the check in its account that was supposed to include trust funds. It then, in violation of its own procedures, issued two checks to Chari’s lenders.
Presumably, this form of transaction was intended to provide added assurances to the two lenders by “running the money” through DTA. One of the lenders exchanged his check from DTA with an official bank check, and the second lender deposited his check at another bank and that check cleared through the normal banking check collection process.