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Pillsbury Winthrop Shaw Pittman LLP

SEC Staff Provides No-Action Relief as a Result of Court's Goldstein Decision
On August 10, 2006, the staff of the Division of Investment Management of the Securities and Exchange Commission issued a "no-action" letter to the American Bar Association's Subcommittee on Private Investment Entities to provide guidance to the hedge fund industry following the decision of the U.S. Court of Appeals for District of Columbia Circuit in June 2006, Goldstein v. SEC. The Goldstein decision had vacated Rule 203(b)(3)-2 and its related amendments (the "Hedge Fund Rule") under the Investment Advisers Act of 1940, the intent and effect of which had been to require the registration of a substantial number of investment advisers to hedge funds. The SEC did not appeal the ruling and, as of August 7, 2006, the Court decision became final

08-15-2006

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Hunton & Williams, LLP

Ohio Federal Court Rules on Trigger of Coverage, Allocation, and Related Issues Involving Nursing Home Claims
In Manor Care, Inc. v. First Specialty Insurance Corporation, the Northern District of Ohio, construing Ohio law, held that an excess liability insurance contract was triggered only if an accident and resulting injury occurred during the policy period in the context of underlying nursing home claims. The court rejected the insured's attempt to apply an "all sums" allocation approach in the nursing home context, and concluded that multiple self-insured retentions ("SIRs") could apply to a single underlying lawsuit. Manor Care, Inc. v. First Specialty Ins. Corp., No. 3:03CV7186, 2006 WL 2010782 (N.D. Ohio July 17, 2006).

08-15-2006

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Hinshaw & Culbertson, L.L.P.

Ohio Lawyer's Representation Ended When Lawyer So Informed Client, Not When Lawyer Moved to Withdraw
Smith v. Conley, 109 Ohio St.3d 141, 846 N.E.2d 509 (Ohio 2006)

Brief Summary
The Ohio Supreme Court held that the attorney-client relationship ended when the attorney clearly informed the client that he no longer could represent him and would take no further actions on his behalf. The Court rejected the client’s claim that the attorney-client relationship only terminated when the attorney subsequently filed, and the trial court granted, a motion to withdraw. As a result, the client’s legal malpractice claim against the attorney was time-barred.

Complete Summary
The sole issue presented in this decision was whether, for statute of limitations purposes, the termination of the attorney-client relationship occurred when a lawyer told the client that the lawyer would proceed no further or when a motion for leave to withdraw was filed pursuant to local rules of court.

Attorney Craig Conley represented Clayton Smith in a criminal trial. When the trial concluded on August 21, 2002, Mr. Smith was found guilty of one count of passing bad checks. Mr. Smith's sentencing hearing was scheduled for September 26, 2002. In the interim, Mr. Smith allegedly discovered exculpatory evidence and asked Mr. Conley to request a new trial. Mr. Conley disputed the value of the evidence and disagreed about the supposedly newly discovered nature of the evidence. Mr. Conley thereafter wrote two letters to Mr. Smith, dated August 26, 2002, and August 28, 2002, respectively, memorializing an August 26 telephone conversation between the two and purporting to terminate the attorney-client relationship. Mr. Smith then filed a pro se motion for a new trial on September 3, 2002. On September 6, 2002, Mr. Conley filed a motion to withdraw as counsel. The trial court apparently did not rule on Mr. Conley's motion to withdraw until April 11, 2005.

Mr. Smith sued Mr. Conley for legal malpractice on September 5, 2003, alleging that Mr. Conley committed errors during the underlying criminal proceedings resulting in Mr. Smith's conviction. Mr. Conley moved for summary judgment on statute of limitations grounds. The trial court found that Mr. Smith's legal malpractice cause of action accrued no later than September 3, 2002, when Mr. Smith filed his pro se motion for a new trial and, consequently, that Mr. Smith's complaint was untimely.

The Court of Appeals reversed. The appellate court held that the statute of limitations did not begin to run until September 6, 2002, when Mr. Conley filed his motion to withdraw. The Ohio Supreme Court accepted Mr. Conley’s discretionary appeal.

The Ohio Supreme Court reversed the Court of Appeals’ decision. The Ohio Supreme Court started from the premise that “an action for legal malpractice accrues and the statute of limitations begins to run when there is a cognizable event whereby the client discovers or should have discovered that his injury was related to his attorney's act or non-act and the client is put on notice of a need to pursue his possible remedies” against the attorney, or “when the attorney-client relationship for that particular transaction or undertaking terminates, whichever occurs later.” 806 N.E.2d at 512 (internal quotations omitted). Thus, the Ohio Supreme Court framed the issues as follows: “(1) When should the client have known that he or she may have an injury caused by his or her attorney? and (2) When did the attorney-client relationship terminate?” Id.

The Ohio Supreme Court next turned to the allegations of Mr. Smith’s complaint, where he averred that “Mr. Conley committed legal malpractice when he failed to request a directed verdict and when he failed to offer for admission into evidence transcripts of tape-recorded conversations between Mr. Smith and the police"", which Mr. Smith alleged clearly exonerate him.” The Court reasoned that because “[T]rial strategy and the presentation of evidence are usually in the sole discretion of the trial attorney [citations omitted] . . . the admission or lack of admission of evidence by itself would not put the criminal defendant on notice of potential malpractice.” Here, however, Mr. Smith's complaint was that Mr. Conley's malpractice resulted in a conviction, such that the date of the conviction was the date that Mr. Smith should have known that he had an injury caused by Mr. Conley. Because Mr. Smith’s allegations of negligence pertained to actions taken by Mr. Conley during the pendency of the criminal case, the Court concluded Mr. Smith should have discovered these alleged errors, at the latest, when he was convicted of the criminal charge.

Having determined when Mr. Smith should have known he had an injury caused by Mr. Conley, the Court next considered the second statute of limitations inquiry at issue - when the attorney-client relationship ended. The Ohio Supreme Court opined that “[W]hile, in general, clients may dismiss their attorneys at any time, the withdrawal of an attorney from representation is covered at least in part by the Code of Professional Responsibility. DR 2-110(A)(2) instructs attorneys not to withdraw without first guarding the client's welfare and allowing time for the client to employ other counsel. DR 2-110(A)(1) requires an attorney to request permission from the appropriate tribunal to withdraw as counsel when required by the Rules of the tribunal.” The court rejected Mr. Smith’s contention that local court rules, rather than communications between attorney and client, should be the deciding factor. In the court’s view, the local rule requirements for the motion to withdraw were fundamentally administrative in nature and should therefore not control substantive client rights or attorney obligations. Since Mr. Conley had clearly informed Mr. Smith no later than August 28, 2002, that he would no longer represent him, the attorney client relationship ended on that date.

Significance of Opinion
The Smith opinion is consistent with the decisions in a number of other jurisdictions that have addressed this issue. The logic behind the decision is straightforward: where, as here, the client is specifically notified that the attorney will no longer represent him, that notification should end the attorney-client relationship, irrespective of whether certain formalities need to be completed to formally terminate the relationship.

08-15-2006

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Bricker & Eckler LLP

OIG and CMS Issue New Safe Harbors and Stark Exceptions on Electronic Prescribing and Electronic Records Systems
The Centers for Medicare and Medicaid Services ("CMS") and the Office of Inspector General ("OIG") recently released final rules establishing protections for certain arrangements involving the donation of items and services used in electronic prescription systems and electronic health records systems.

08-15-2006

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Bricker & Eckler LLP

What is "Preemption"?
The dual banking system in this country has existed since Congress authorized establishment of the national bank charter over 200 years ago. Since that time, both the federal government and the states have exercised authority to charter banks and thrifts that, up to relatively recent times, rarely operated outside of the state in which their main office was located.

Along with the growth of multi-state banking operations, technological advances, and a more mobile customer base came an increased focus on how banks and thrifts operating across state lines could address compliance with the patchwork of state laws and regulations impacting their operations. Further, since their inception national banks and thrifts have had to address conflicts between state and federal laws and regulations which impact their operations and structure in the states in which they operate.

A somewhat confusing array of state and federal laws and regulations intending to address multi-state banking issues and operations arose in the 1990’s including federal legislation such as the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, regional and multi-state state-level “compacts”, and state “parity” laws which, while making great work for those of us in the legal profession, still resulted in a relatively murky path to multi-state compliance.

Enter the Comptroller in January, 2004, issuing regulations which set forth the OCC’s position with regard to areas of lending, deposit-taking and other banking operations where federal law preempts state and local law, and those areas where state law continues to govern even federally-chartered institutions. The Comptroller’s rule also set forth the OCC’s position with respect the proper applicability of state-level licensing, regulation, and oversight with regard to national banks. The general rule as expressed by the OCC’s issuance is that, except as made applicable by federal law, state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its authorized powers do not apply to national banks. A federal statute may, in fact, require the application of state law in certain instances or may incorporate (or “federalize”) state standards. The OCC also takes the position that the same preemption standards apply to national bank operating subsidiaries. The extention of preemptive rights to national bank operating subsidiaries has generated litigation concerning that topic in a number of courts including a pending case that is referenced later.

In addition, federal thrift affiliates of large insurance companies have become more active in marketing banking products nationally through existing insurance agency channels, prompting litigation by state regulators over the preemptive authority of the OTS (and conversely the ability of state banking regulators to license and/or oversee the banking activities) in these instances. Several high-profile cases remain pending nationally, and the decisions in those cases could have an important impact on the ability to distribute banking products through non-traditional sales channels.

It is important to note that courts have, for the most part, strongly upheld the concept of federal preemption and the authority of the OCC and the OTS in issues involving preemptive rights of federally-chartered institutions, and that the OCC rules are for all intents identical to those of the OTS for federally-chartered thrifts. The Comptroller’s 2004 issuance endeavored to, in essence, codify historical OCC interpretations and court decisions involving preemption issues, but was seen by some as a usurpation of the legislative process and states’ rights. Irrespective, it provides guidance to national banks concerning those situations where the Comptroller will support national banks in taking the position that state or local law is preempted by federal law, where the OCC will “occupy the field” of regulation of those activities, and a more clear and concise “safe harbor” at least where the OCC is concerned.

The OCC and OTS rules are not, however, exclusive and court-established precedent continues to apply to other areas of bank and thrift operations and activities which are subject to the concept of federal preemption.

So just what is “preemption” and how does it impact your institution?

Preemption

For purposes of banks and thrifts, preemption is the concept whereby federal laws and regulations in essence “trump” state and local laws and regulations as they may otherwise apply to the institution. It enables federally-chartered institutions to look to, and to rely on, federal statutory and regulatory guidelines for compliance in most instances, irrespective of state and local laws which may sometimes be in direct conflict.

The concept of preemption applies to certain areas of law and regulation and does not apply to others. It provides continuity and uniformity for federally-chartered institutions, and the ability of federally-chartered institutions to rely on federal law and regulation for some aspects of their operations, while applying state law in instances where federal law is silent and where legal precedent would indicate that applicability of state law is appropriate. Preemption of state law and regulation applies for federally-chartered institutions irrespective of whether they are addressing multi-state operational issues or issues within a single state of operation where that state’s laws and regulations may come into conflict with federal laws and regulations otherwise applicable to the institution.

Examples

Examples of how preemption works include the applicability of federal law and regulation to institutions in the areas of engaging in permissible non-bank activities (direct and through subsidiaries) such as mortgage companies, licensing and regulation (chartering, licensing, and examination authority), certain loan terms and conditions (such as state LTV ratios, PMI requirements, credit disclosures, interest rates, etc.), predatory lending, and deposit relationships (such as state requirements regarding disclosure requirements, funds availability, and deposit terms), and other areas of bank activities and operations.

Examples of state laws which continue to apply to federally-chartered institutions include state laws pertaining to real estate matters, contracts, fiduciary considerations, some consumer law considerations, torts, public safety, criminal matters, collection of debts, acquisition and transfer of property, and taxation. Again the foregoing lists are not exclusive but rather examples of areas of state and local law that are not specifically preempted, assuming state and local law does not significantly interfere or conflict with national bank operations or authority.

To the extent that federal law and regulation may provide more flexible or lucrative contract terms, broader bank and non-bank powers, fewer restrictions on lending rates or terms, less governance, easier examination, less disclosure, less compliance burden, or less restrictive loan classification, for example, it may provide an advantage for federally-chartered institutions over their state-chartered counterparts. Or vice versa.

Some states authorize state banking regulators to provide limited “parity” to enable state banks to match their federally-chartered competitors. However, such parity rulings are sometimes limited in duration (which can result in divestiture and operational concerns and limit effectiveness) and institutions relying on such parity rulings must also consider any FDIC and/or Federal Reserve restrictions which may apply.

Again, the examples are not exclusive and the federal agencies retain the right to address other types of state laws on a case-by-case basis to make preemption determinations under applicable standards.

Issues

Critics charge that the OCC has overstepped its authority in application of the preemption rule, however that authority has more often than not been reinforced by the courts. Critics also charge that preemption enables federally-chartered institutions to ignore state laws protecting consumers and expose consumers to abuse and predatory tactics, a charge which is difficult to substantiate upon further examination insofar as the federal agencies enforce federal consumer laws and regulations against their respective charters.

Charter considerations

Some argue that a federal charter provides the continuity and predictability necessary for financial institutions to operate successfully on a multi-state basis, while others contend that state-chartered institutions are, for all intents and purposes, able to engage in the same activities and enjoy the same advantages as their federally-chartered competitors. As with all such considerations, each institution must examine the tangible and intangible pros and cons based on their own business plan and unique circumstances to determine which form of charter works for best for their specific purposes. And they must keep in mind that charter considerations may change as the institution’s business, as well as it’s market and customers, change in order to maximize business opportunities. The fact that the dual-charter system remains alive and well is evidence that the preemption opportunities provided for federally-chartered institutions do not automatically make a federal charter the preferred charter, or the charter of choice, for all institutions.

What’s next

While the courts have consistently upheld the concept of federal preemption as applied to federally-chartered financial institutions, and Congress has not acted to restrain the Comptroller or the OTS in the application of that authority, it is not inconceivable that the tide could turn and courts and/or Congress could limit or revoke some or all of the broad federal authority in this area. State banking regulators and activist state attorneys general have been visibly involved in challenging the preemptive authority of federal agencies, and the outcome is uncertain.

In addition to the pending cases involving federal thrift affiliates of insurance companies, there is an important decision pending before the United States Supreme Court involving Michigan state regulators and Wachovia regarding Wachovia’s Michigan-chartered mortgage affiliate. The case involves the OCC’s contention that federal law governs state-chartered non-bank firms like mortgage companies which are structured as operating subsidiaries of national banks. The position of the Michigan regulators (and regulators from 31 other states and the District of Columbia who have joined in the suit) revolves around the issue of whether the Constitution provides deference to federal agencies such as the OCC to the detriment of state sovereign powers reserved under the Tenth Amendment.

The decision in the Wachovia case is critical in that it will establish important precedent for the exercise of preemption authority by federal agencies and the ability of federally-chartered institutions to rely on OCC and OTS rulemaking, particularly in multi-state operating environments. If the Court denies or limits the preemptive authority, the case could call into question all of the business of such mortgage company operations as unlicensed entities in the states where they conducted business in reliance on preemptive authority.

Depending on the outcome, Congress may also get into the act to protect, or to curtail, the authority of federal agencies to exercise rulemaking authority which preempts state and local law. Either way, the Wachovia decision will be an important indication of the right of states to govern state-chartered organizations when there is an affiliation with a federally-chartered institution.

Conclusions

While the concept of preemption for federally-chartered institutions remains the law of the land, the recent focus on preemption and the industry interest generated by the OCC’s 2004 rulemaking as well as some high-visibility court cases may have a significant impact on preemption going forward. Whether Congress steps into the fray remains to be seen, and until that happens, or the Supreme Court acts to curb the authority of federal agencies to preempt state and local law, federally-chartered institutions will continue to have the ability to rely on preemption when dealing with potentially conflicting state law and regulations. That fact alone does not necessarily provide federally-chartered institutions with an advantage over their state-chartered counterparts, but rather each institution must look to their own unique individual circumstances and business plan, and intangible as well as tangible benefits to each type of charter, to determine the most advantageous charter for their operations. And insofar as laws, regulations, and business plans can and do change, that consideration should be undertaken whenever appropriate for the institution to address a changing environment.

08-15-2006

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Hunton & Williams, LLP

Latin America Practice Assisting Client In $1.77B Tender Offer
Hunton & Williams announced today that it is representing Grupo Banistmo, S.A., Central America’s largest financial group, in its US$1.77 billion sale to HSBC Holdings. The Hunton & Williams team is being led by partners Fernando Margarit and Carlos Loumiet. Associates Carol Fernandez, Fradyn Suarez and Uriel Mendieta are also assisting on this matter.

The sale will be accomplished through an all-cash tender offer by HSBC of U.S.$ 52.63 per common share of Grupo Banistmo. The transaction is expected to close in the fourth quarter and is subject to regulatory approval.

HSBC’s purchase of Grupo Banistmo will be its largest in Latin America, giving it at least 220 branches in Panama, Costa Rica, Honduras, Colombia, El Salvador and Nicaragua. When completed, the transaction will also be the largest tender offer in the history of Panama and Central America.

Hunton & Williams’ representation of Grupo Banistmo on this transaction follows its prior representation of Grupo Banistmo in a series of other significant acquisitions in Central America.

The Panamanian law firm of Aleman, Arturo, Galindo & Lee, primarily through its partners Arturo Gerbaud and Anibal Galindo, is also serving as counsel to Grupo Banistmo in the sale. HSBC is being represented by Cleary, Gottlieb, Steen & Hamilton, through its partners Paul Shim and Jorge Juantorena, and the Panamanian law firm of Morgan & Morgan, through its partners Romulo Roux and Inocencio Galindo, Jr.

Hunton & Williams has one of the largest and most experienced Latin American practices among any law firm in the world, consisting of more than 50 attorneys and consultants who have a long history in the region. Clients range from some of the world’s largest financial institutions and multinational corporations, to local governments and agencies, to prominent Latin American families. The Latin America practice group has handled matters in every Latin American and major Caribbean country.

08-15-2006

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Hunton & Williams, LLP

Hunton & Williams Helps Client Airspan Secure $29M Contracts
Hunton & Williams recently assisted its client Airspan Networks Inc. (NASDAQ: AIRN), a provider of fixed and wireless voice and data system solutions, execute financing transactions that, in the aggregate, are anticipated to provide the Airspan with approximately $29 million of proceeds.

With the legal guidance of Hunton & Williams partner David Wells and associate Carrie Levine, Airspan entered into an agreement under which it will, upon closing of the transaction, secure $29 million of gross proceeds from the sale of preferred stock to Oak Investment Partners XI Limited Partner.

08-15-2006

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