The exception swallowed the rule. The Fifth Circuit essentially overruled the judicially-created voluntary-involuntary limitation to remove a case post-suit based on federal diversity jurisdiction in Advanced Indicator and Manufacturing, Inc. v. Acadia, 50 F.4th 469, 474 (5th Cir. 2022). Accordingly, this means that if you represent a diverse defendant in a state court case, be on the look-out for opportunities to make the case removable and timely remove the case to federal court.

I. Background of the Voluntary-Involuntary Rule

A defendant may remove a suit to federal court if diversity of citizenship exists, as long as none of the parties in interest properly joined and served are citizens of the State in which action is brought. See 28 U.S.C. § 1441. However, courts have created a voluntary-involuntary rule:  when the case is not removable because of joinder of in-state defendant(s), only the plaintiff’s voluntary dismissal of defendant(s) or nonsuit will make the case removable. See Hoyt v. Lane Construction Corp., 927 F.3d 287, 295 (5th Cir. 2019). In other words, “an action nonremovable when commenced may become removable thereafter only by voluntary act of the plaintiff.” See Advanced Indicator and Manufacturing, Inc. v. Acadia, 50 F.4th at 474 (5th Cir. Oct. 3, 2022) (citing Weems v. Louis Dreyfus Corp., 380 F.2d 545, 547 (5th Cir. 1967)).

In 1949, Congress amended Section 1446 to allow removal within thirty (30) days after receipt “of a copy of an amended pleading, motion, order, or other paper from which it may first be ascertained that the case is one which is or has become removable.” See 28 U.S.C. § 1446(b)(3), (c)(1). Then, the Fifth Circuit held that Section 1446(b) did not abrogate the voluntary-involuntary rule. See Hoyt, 927 F.3d at 295; Weems v. Louis Dreyfus Corp., 380 F.2d 545, 547-48 (5th Cir. 1967). Courts have interpreted the Weems holding to establish that the pleading or other paper referenced in Section 1446(b) must be from “some voluntary act of the plaintiff.” See, e.g., Hernandez v. United Parcel Serv., Inc., No. 09-CV-427-KC, 2009 WL 10700077, at *3 (W.D. Tex. Dec. 10, 2009); Joiner v. Mississippi AG Co., No. CIVA 306CV337WHBJCS, 2006 WL 2884523, at *2 (S.D. Miss. Oct. 10, 2006).

II. Improper Joinder Exception to the Voluntary-Involuntary Rule

Nonetheless, the voluntary-involuntary rule is itself subject to a judicially created exception for improper joinder. Hoyt, 927 F.3d at 295; Crockett v. R.J. Reynolds Tobacco Co., 436 F.3d 529, 533 (5th Cir. 2006). As noted by the Fifth Circuit in Crockett, the text of 28 U.S.C. § 1441(b) blocks removal only where “properly joined” defendants are citizens of the state in which it is brought. See 28 U.S.C. § 1441(b); Crockett, 436 F.3d at 533, n.7 (noting that the statutory language supports removal where defendants were improperly joined such that the voluntary-involuntary rule was inapplicable).

A defendant may establish improper joinder either by: (1) “actual fraud in the pleading of jurisdictional facts;” or (2) “inability of the plaintiff to establish a cause of action against the non-diverse party in state court.” See Acadia, 50 F.4th at 473. In assessing a plaintiff’s ability to establish a cause of action against a non-diverse defendant, the inquiry depends on whether the state court has already ruled on the plaintiff’s claim. See Hoyt, 927 F.3d at 296. If the state court has not ruled yet, the federal court asks if “there is any reasonable possibility that a state court would rule against the non-diverse defendant.” Id. (citation omitted) If the state court has made a judgment, the federal court asks whether “there is any reasonable possibility that the judgment will be reversed on appeal.” Id. (citation omitted).

Generally, to determine whether the plaintiff has any possibility of recovery against the non-diverse defendant(s), the court may “conduct a Rule 12(b)(6)-type analysis, looking initially at the allegations of the complaint to determine whether the complaint states a claim under state law against the in-state defendant.” Ticer v. Imperium Ins. Co., 20 F.4th 1040, 1046 (5th Cir. 2021); Flagg, 819 F.3d at 136–37. However, when a plaintiff’s complaint has “misstated or omitted discrete facts that would determine the propriety of joinder,” the court may in its discretion “pierce the pleadings and conduct a summary inquiry.” Ticer, 20 F.4th at 1046; Flagg, 819 F.3d at 136–37. Such a summary inquiry “is appropriate only to identify the presence of discrete and undisputed facts that would preclude plaintiff’s recovery against the in-state defendant.” Ticer, 20 F.4th at 1046; Flagg, 819 F.3d at 136–37.

III. Improper Joinder Overtakes the Voluntary-Involuntary Rule

Although the Fifth Circuit held in Weems that the voluntary-involuntary rule survived the enactment of 28 U.S.C. § 1446(b), the Fifth Circuit’s recent holding in Advanced Indicator and Manufacturing, Inc. v. Acadia extends the improper joinder exception already broadened by its holdings in Crockett v. R.J. Reynolds Tobacco Co., and Flagg v. Stryker Corp. to effectively overrule the voluntary-involuntary rule. See Acadia, 50 F.4th at 478 (J. Engelhardt concurring); Crockett, 436 F.3d at 533 (holding that when a state court order creates diversity jurisdiction, and that order cannot be reversed on appeal, the voluntary-involuntary rule is inapplicable); Flagg v. Stryker Corp., 819 F.3d 132, 137 (5th Cir. 2016) (en banc) (holding the time to determine improper joinder is the time of removal).

In Acadia, the plaintiff sued the insurance company, Acadia (an out-of-state resident) and the adjuster (an in-state resident) in state court. Acadia, 50 F.4th at 472-73. A few weeks later, Acadia elected to accept responsibility for the adjuster under the Texas Insurance Code, and the next day, removed the case to federal court. Id. at 472. One week later, the adjuster filed a motion to dismiss stating that plaintiff could no longer state a claim against him. Id. The plaintiff filed a motion to remand, and the district court denied it based on improper joinder. Id. The Fifth Circuit upheld the district court’s decision, holding that the time of removal is the pertinent moment to determine whether a non-diverse party is improperly joined, making the voluntary-involuntary rule inapplicable. Id. at 473-74. The Fifth Circuit expressly ruled that a district court must examine the plaintiff’s possibility of recovery against the in-state defendant(s) at the time of removal. Id. Importantly, the Fifth Circuit upheld the district court’s decision even though the defendant, Acadia, was the party who took the action to trigger the improper joinder exception. See id. at 473-74, 478-79.  As a result, a post-lawsuit, pre-removal action of a defendant may mandate removal as long as a defendant establishes improper joinder at the time of removal.

IV. Implications of the New Fifth Circuit Ruling in Acadia

What does the Fifth Circuit’s ruling in Acadia mean for defendants who discover the case is removable based on their own action or an action of other defendants rather than a voluntary act of the plaintiff?

Acadia opens a whole new world of opportunities for removal to federal court. Prior to Acadia, courts have interpreted 28 U.S.C. § 1446(b)(3) broadly, to include letters with settlement terms, demand letters, deposition answers, and discovery documents within the ambit of “other papers.” See, e.g., Addo v. Globe Life & Acc. Ins. Co., 230 F.3d 759, 761 (5th Cir. 2000); Hobson v. Chase Home Fin., LLC, No. CIVA5:08CV288DCBJMR, 2009 WL 2849591, at *1 (S.D. Miss. Sept. 1, 2009) (explaining that Plaintiff’s summary judgment motion sufficed as a pleading to ascertain whether the case was removable). However, these broad interpretations had been subject to the voluntary-involuntary rule. See Addo, 230 F.3d at 761. After Acadia, any action or pleading of a defendant may implicate that the case is removable. See generally Acadia, 50 F.4th 469; 28 U.S.C. § 1446(b)(3).

While this broadens the possibility of removal after a case is filed, it also results in a quick thirty-day deadline from receipt of any document from either a plaintiff or a defendant where removability may be ascertained. See Acadia, 50 F.4th at 472-74; 28 U.S.C. § 1446(b)(3); see Addo, 230 F.3d at 761 (holding that removal was improper where the defendant failed to remove the case within thirty days of receiving a letter from the plaintiff notifying defendant of the changed circumstances which supported federal jurisdiction). After Acadia, any paper or communication in all aspects of the litigation may implicate removability and begin the thirty-day clock. See Acadia, 50 F.4th at 472-74; 28 U.S.C. § 1446(b)(3); see Addo, 230 F.3d at 761. Accordingly, a diverse defendant must thoroughly analyze any paper received in a case that is potentially removable in order to decipher whether diversity jurisdiction may apply and file a notice of appeal within thirty days of receipt.

The Acadia ruling is consistent with the express statutory language of 28 U.S.C. § 1446(b)(3) and promotes the very purpose of the removal statute, encouraging prompt resort to federal court when a defendant first learns that the federal court has subject-matter jurisdiction. See 28 U.S.C. § 1446(b)(3); Addo, 230 F.3d at 762. However, it remains to be seen whether the Fifth Circuit will extend its ruling to cases in which federal question jurisdiction may be ascertained post-suit. Denson v. LPL Fin., LLC, No. 1:17-CV-215, 2017 WL 10154237, at *6 (E.D. Tex. July 31, 2017) (refusing to dispense of the voluntary-involuntary rule in a federal question case based on lack of binding precedent and discussing lower court cases applying the voluntary-involuntary rule to removals under federal question jurisdiction.).

V. How does Acadia Affect the One-Year Limitation for Removal of Diversity Actions Under 28 U.S.C. § 1446(c)(1)?

It does not change the one-year limitation for removals of diversity actions. If a diverse defendant waits more than one year after the suit is filed, the defendant will have to prove bad faith, an analysis separate and apart from improper joinder. See Hoyt, 927 F.3d at 293. To determine improper joinder, the question of whether the plaintiff is able to establish a cause of action against the non-diverse party focuses on what the plaintiff might prove in the future. See Hoyt, 927 F.3d at 293. Contrastingly, to determine bad faith, the question of whether plaintiff’s litigation conduct meant to prevent removal of the suit focuses on what motivated the plaintiff in the past. See id. A determination of bad faith is subject to a high burden, but “conduct rises to the level of bad faith when a party makes a transparent attempt to avoid federal jurisdiction.” Boney v. Lowe’s Home Centers LLC, No. 3:19-CV-1211-S, 2019 WL 5579206, at *2 (N.D. Tex. Oct. 29, 2019); see also TK Trailer Parts, LLC v. Long, No. 4:20-CV-2864, 2020 WL 6747987, at *6 (S.D. Tex. Nov. 2, 2020), report and recommendation adopted, No. 4:20-CV-2864, 2020 WL 6743738 (S.D. Tex. Nov. 17, 2020) (discussing cases where courts have found bad faith).

Conclusion: Now that the voluntary-involuntary rule is essentially abrogated in diversity jurisdiction cases, diverse defendants who wish to remove their cases to federal court should be diligent in all aspects of the litigation to ascertain whether and when the case is or has become removable.

The Longshore and Harbor Workers’ Compensation Act (“LHWCA”) and the Jones Act are the two statutory recovery schemes available to injured maritime workers. Under the Jones Act, a “seaman” is entitled to recover certain damages from his Jones Act employer. Under the LHWCA, a “longshoreman” recovers under a federally managed workers’ compensation program. The Jones Act employer remedy and the LHWCA workers’ compensation structure are a maritime employee’s only avenues to recovery against his or her employer. In addition to being the exclusive remedies available for seamen and longshoremen, the Jones Act and LHWCA remedies are mutually exclusive. Thus, accurately characterizing a worker as a seaman or a longshoreman is a vitally important initial step in both risk management planning and litigation response. Unfortunately, this important task is not always cut and dry.

The Supreme Court’s Jones Act Test

Three Supreme Court cases form the foundation of the Jones Act seaman status test. First, in McDermott Int’l, Inc. v. Wilander, the Court instructed that “[t]he key to seaman status is employment-related connection to a vessel in navigation.”[i] Next, in Chandris, Inc. v. Latsis, the Supreme Court refined the Wilander “substantial connection” test, adding two requirements for seaman status:

  • an employee’s duties must contribute to the function of the vessel or to the accomplishment of its mission; and
  • a seaman must have a connection to a vessel in navigation (or to an identifiable group of such vessels) that is substantial in terms of both duration and nature.[ii]

Finally, in Harbor Tug and Barge Co. v. Papai, the Supreme Court further developed the second Chandris prong, highlighting the distinction between land-based and sea-based employees, and instructing that “the inquiry into the nature of an employee’s connection to the vessel must concentrate on whether the employee’s duties take him to sea.”[iii]

The Fifth Circuit, which oversees federal courts in Texas, Louisiana, and Mississippi has held that the first Chandris prong is “relatively easy” to satisfy, requiring only that the worker seeking seaman status show that he “does the ship’s work.”[iv] This “requirement is very broad, encompassing all who work at sea in the service of a ship.”[v] Generally, this merely requires looking to the vessel’s primary mission, and evaluating whether or not the putative seaman’s work furthers that mission. Importantly, contribution to the function or mission of the vessel does not require a worker to be involved in operation or navigation of the vessel.

While the first Chandris prong is relatively easy, the second prong has proven far more nuanced. Until recently, courts have focused on whether a worker faces the “perils of the sea” in answering the substantial connection prong.

Fifth Circuit Issues Sanchez

In 2021, the Fifth Circuit sought to add clarity to Chandris’ “substantial connection” prong, issuing its opinion in Sanchez v. Smart Fabricators of Texas, LLC.[vi]  The Sanchez Court took a deep dive into Supreme Court precedence on Jones Act seaman status, concluding that the “perils of the sea” test was alone insufficient to determine whether a substantial connection existed. The Sanchez Court then distilled down various factual considerations from Supreme Court precedence into three inquiries that must be satisfied in addition to considering whether the worker was subject to the perils of the sea:

  1. Does the worker owe his allegiance to the vessel, rather than simply to a shoreside employer?
  2. Is the work sea-based or involve seagoing activity?
  3. Is the worker’s assignment to a vessel limited to performance of a discrete task after which the worker’s connection to the vessel ends, or does the worker’s assignment include sailing with the vessel from port to port?[vii]

Applying these inquires to its own facts, the Sanchez Court found that Mr. Sanchez was not a seaman because he “was not engaged in sea-based work that satisfied the requirement that he be substantially connected to a fleet of vessels in terms of the nature of his work.” In reaching that conclusion, the Sanchez Court evaluated the two separate jobs on which Mr. Sanchez was assigned to work as a welder on offshore oil rigs.

In one instance, the rig on which Mr. Sanchez worked was in port, “jacked-up with the barge deck level with the dock and a gangplank away from shore.”[viii] This work did not take Mr. Sanchez to sea or constitute work of a seagoing nature. Further, Mr. Sanchez’s work was discrete and transitory because he was not going to sail with the vessel after his work was completed.

In the second instance, the rig on which Mr. Sanchez worked was on the outer continental shelf awaiting repairs. Despite the fact that the vessel was offshore, the Sanchez Court held that because Mr. Sanchez was on the vessel to perform a discrete, individual job, and because there was no evidence suggesting that he planned to remain aboard after the job was completed, his tasks were merely transitory and did not qualify him for seaman status.[ix]

Texas Interpretation of Sanchez an Open Question

Though designed to clarify Fifth Circuit precedence on Jones Act seaman status, the Sanchez factors may have inadvertently muddied the waters. As pointed out by one Louisiana court applying Sanchez, it remains unclear whether the Sanchez inquiries are “mandatory elements” or merely “intended to be treated as indicia or factors to be weighed.”[x] Texas practitioners, like their Louisiana peers, have no clear answer either, as to date no Texas federal court has published an opinion applying Sanchez. Thus, to the extent helpful, Texas litigators should look to the analysis provided by Louisiana federal courts in crafting their arguments on seaman status. While litigators seeking to determine an injured worker’s seaman status can use the newly delineated factors to frame their arguments in novel ways, it will take time to see whether Sanchez’s goal of clarifying Jones Act seaman status was accomplished.

* For additional commentary on Louisiana federal courts’ interpretation of Sanchez, see our forthcoming post on the Kean Miller Louisiana Law Blog.

To learn more about Kean Miller’s extensive maritime experience and view contact information for our maritime attorneys, visit our Admiralty and Maritime services page.

[i] 498 U.S. 337, 355 (1991).

[ii] 515 U.S. 347, 368 (1995).

[iii] 520 U.S. 548, 555 (1997).

[iv] Becker v. Tidewater, Inc., 335 F.3d 376, 387-88 (5th Cir. 2003).

[v] Id. at 388.

[vi] 997 F.3d 564, 573 (5th Cir. 2021).

[vii] Id.

[viii] Id. at 575.

[ix] Id. at 576.

[x] Sanchez v. American Pollution Control Corp., 542 F.Supp.3d 446, 457 (E.D. La. 2021).

The oil tanker Riverside allided with a loading dock after a failed maneuver during its attempted exit of Corpus Christi Bay.

An allision occurs when a vessel in navigation strikes a stationary object, like a dock or a bridge. In the maritime world, allisions differ from collisions in that collisions involve two vessels striking each other. Except in limited circumstances, such as where the fixed object impedes navigation, longstanding judicial precedence applies a presumption of negligence against the vessel in allisions. This presumption is called the Oregon Rule and is explained by the Fifth Circuit this way: “The presumption presupposes that had the vessel not been mismanaged, the accident would not have occurred.”

Given the presumption of negligence, vessel owners and operators must sort out the root cause of any allision and take care in preventing future incidents to limit potential liability. The National Transportation and Safety Board’s investigation into an allision involving the vessel Riverside provides an interesting example of how the NTSB assigns blame and how fine the line often is between mechanical and human failure.

On March 15, 2021 at 1302 local time, Riverside, an 820-foot-long oil tanker was outbound from Corpus Christi Bay to Lisbon, Portugal laden with 717,554 barrels of crude oil. Due to the vessel’s size, two pilots were required for the transit through the Corpus Christi Ship Channel. The first pilot, Captain Ben Watson directed Riverside from the Epic oil dock through the Harbor Bridge. After an uneventful transit under the Harbor Bridge, the second pilot, Captain Justin Anderson, took the conn for the remaining transit to open water.

As they approached beacons 55/56, Captain Anderson radioed the pilot of Nordic Aquarius, which was preparing to depart from Moda Ingleside Energy Center dock number 4, roughly four miles in front of Riverside’s current position. After discussion, Captain Anderson agreed to let the Nordic Aquarius enter the channel in front of Riverside. To provide Nordic Aquarius sufficient space to maneuver into the channel, Captain Anderson began ordering Riverside to reduce speed around beacons 49/50.

[NOAA Chart NOAA Chart – 11309_Public]

By beacons 43/44, Riverside was progressing at dead slow ahead. Unfortunately, as the vessel slowed, the rudder became ineffective, causing the helm to lose control and Riverside to drift off course. To regain control, Captain Anderson briefly increased speed to slow ahead as Riverside began approaching the port channel bend just east of beacons 43/44. Satisfied that they had reestablished course, Captain Anderson again ordered dead slow ahead to keep speed down and provide Nordic Aquarius adequate maneuvering room. As Nordic Aquarius continued its entry into the channel, Captain Anderson realized Riverside was still approaching too quickly and ordered the engine stopped.

Having now slowed Riverside to 6 or 7 knots and given Nordic Aquarius time to clear the channel, Captain Anderson again ordered dead slow ahead to ensure effective steering through the approaching channel bend. Unfortunately, the engine failed to start. As recounted by Captain Anderson:

I noticed that the helmsman has been holding 25° starboard rudder with no effect. I ordered hard starboard. At that point, we have not yet received the dead slow engine command. I noticed the captain playing with the engine controls and asked him if we had a problem. He informed me that we had lost the main engine.

Having lost propulsion, Riverside was unable to correct course and continued to veer toward Moda dock 4. Captain Anderson immediately radioed nearby tugboats that had just finished assisting Nordic Aquarius depart the dock. One tug remaining on scene attempted to push Riverside’s port bow off of Moda dock 4. Unfortunately, the single tug was not able to redirect Riverside back into the channel before it had to bail out in order to avoid being pinched between Riverside and the dock.

[NTSB Report graphic showing phases of the incident Contact of Tanker Riverside with Moda Ingleside Energy Center No. 4 Loading Dock (ntsb.gov)]

With no engine, no steering, and no available tug assist, Riverside’s port bow hit Moda dock 4. Moda’s Operations Manager initially reported that Riverside struck “the first end of the finger pier causing approximately 50’ of the pier to break off, including the dolphins [and] lighting.” NTSB’s estimate placed property damage at roughly $7,000,000.

Riverside sustained damage to her port fore peak tank, water ballast tank, and void fore space. Fortunately, despite the heavy deformation noted by the surveyor, no cracks were observed and there was no threat of pollution from the oil on board. According to NTSB’s estimate, Riverside’s damage amounted to roughly $550,000.

[NTSB Report damage photos citing USCG as source Contact of Tanker Riverside with Moda Ingleside Energy Center No. 4 Loading Dock (ntsb.gov)]

NTSB investigated the incident and determined that the engine failure was caused by a dirty “air start actuator valve within the starting air distributor.” Further investigation revealed that Riverside’s engineers had trouble starting the main engine on March 12—just days prior—as they awaited permission to enter Corpus Christi Bay.  Neither the Coast Guard nor the pilot navigating Riverside on March 12 were informed of the engine start failure and Riverside proceeded to the Epic oil dock assuming any problem was repaired.

Despite initial trouble starting the engine on March 12, the captain and crew onboard Riverside did not believe there was a long-term issue. In fact, the engine was stopped and started twice without incident while maneuvering to the Epic oil dock. However, NTSB’s investigation determined that what Riverside’s engineers believed to be the solution to their problem (introducing more fuel into the engine at start-up) actually had no effect on the system. Instead, whether the engine would start despite the stuck air valve depended on where the valve was in the starting sequence. If the stuck valve was late in the sequence as the engine turned over, sufficient air would already have been introduced to permit the engine to start.

Though Riverside’s engineers believed they had come up with a solution, they entirely failed to accurately determine the problem’s root cause: the stuck valve. Although the inability to start the engine aboard Riverside was traced to the stuck valve—a mechanical problem—NTSB’s probable cause statement ultimately blames the “ineffective evaluation and incorrect solution for a main engine start issue,” putting human error once again front and center in a marine incident report.

Considering the legal presumption of negligence against the alliding vessel and the NTSB’s findings assigning blame to a vessel’s crew, owners and operators are advised to be vigilant when it comes to vessel maintenance and crew training. This vigilance becomes all the more important when a vessel is operating inshore or nearshore under its own power.

Russia’s unprovoked attack on the Ukraine has not been restricted to land. Ukrainian tech resources have been hit by cyber-attacks, particularly against its government and banking systems in a coordinated effort by Russia’s military intelligence unit.[1] Several websites of Ukrainian government departments and banks were hit with distributed denial of service attacks (DDoS), which is a form of attack where threat actors overwhelm a website with traffic until it crashes. While the conflict has not yet spread to western countries, U.S. businesses may still feel the impact due to their reliance on Ukrainian IT services and from potential retaliatory attacks from Russia due to significant U.S. sanctions.

Though not having a physical presence in the Ukraine, many U.S. companies use outsourced Ukrainian IT services. According to the Ukraine’s Ministry of Foreign Affairs, 1 in 5 Fortune 500 companies rely on the Ukraine’s IT outsourcing sector.[2]  Ukraine’s tech workers support banking, insurance, and financial operation services around the world. To mitigate potential impacts, software and technology providers are working to move services and workers elsewhere. For example, SAP SE has closed its office in Kyiv and website development platform Wix.com Ltd. moved its workers to Poland and Turkey last week.[3] However, technology resources such as code, designs, and documentation may still be vulnerable.

The Department of Homeland security has yet not advised of any specific or credible threats to the U.S. homeland, but the Cybersecurity & Infrastructure Security Agency (CISA) published a “Shields Up” memo advising U.S. businesses to prepare to respond to disruptive cyber activity.[4] Though Russia’s cyber attack efforts have primarily targeted the Ukrainian government and critical infrastructure, growing support for Ukraine in the US and other NATO countries increases the likelihood of Russian cyber-attacks against businesses, governments, and critical infrastructure of those allies. Attacks are also a possibility as a retaliation for the heavy sanctions being levied against Russia by the U.S., with direct targets being critical infrastructure.

All businesses, large and small, should remain vigilant during this time of heighted risk and vulnerability. As part of its support of U.S. businesses, CISA has compiled a catalog of free cybersecurity services and tools, which include very helpful resources and up to date information about the latest attack and defense strategies. Certain additional steps recommended by CISA and industry leaders can help shore up vulnerabilities and lower the risk of a cyber incident, as well as renew the commitment as a business to maintaining a strong cybersecurity program. These steps include but are not limited to:

  1. Hope for the best, plan for the worst. It is near certain that all U.S. businesses will be the victim of an attempted cyber-attack at some point (whether that be from Russia or other threat actors); what is in question is the level of success. Businesses should check with their cloud providers to ensure all protections are enabled, even if there is increased cost. Ensure that data is being regularly backed up to minimize business interruption from an encryption event or if data is wiped. If it has been a while since you have updated your cyber incident response plan, review the plan to ensure it is up to date and conduct tabletop exercises to run through how a cyber event will be handled.
  2. Take proactive steps to reduce the likelihood of a cyber event. Review policies regarding remote access, authentication requirements, and secure controls to ensure they are up to date and consistent with best practices. Ensure that all software is updated to the latest version, and that IT has disabled ports and protocols that are not essential for a business purpose. Particularly if your organization or your critical service providers work with Ukrainian organizations, take extra care to monitor, inspect, and isolate traffic from those organizations. IT should also take additional care to monitor unexpected traffic from overseas.
  3. Conduct trainings with employees. Regular cyber security trainings with employees should already be a part of your business’ practices for employees with access to company networks and data. However, the heightened risk presented today merits additional reminder trainings, as well as targeted trainings about how to best protect business computer systems by employees with significant access.

[1] Ryan Browne, “The world is bracing for a global cyberwar as Russia invades Ukraine”, CNBC (Feb. 25, 2022) (https://www.cnbc.com/2022/02/25/will-the-russia-ukraine-crisis-lead-to-a-global-cyber-war.html).

[2] Edward Segal, “Why The Impact of Russian Cyberattacks On Ukraine Could Be Felt Around the World”, Forbes (Feb. 23, 2022) (https://www.forbes.com/sites/edwardsegal/2022/02/23/the-impact-of-russian-cyberattacks-in-ukraine-could-be-felt-around-the-world/?sh=649680cb56b2).

[3] Isabelle Bousquette and Suman Bhattacharyya, “Ukraine’s Booming Tech Outsourcing Sector at Risk After Russian Invasion,” The Wall Street Journal (Feb. 24, 2022) (https://www.wsj.com/articles/ukraines-booming-tech-outsourcing-sector-at-risk-after-russian-invasion-11645749755).

[4] “Shields Up”, CISA (last accessed Feb. 25, 2022) (https://www.cisa.gov/shields-up).

The Texas Legislature recently repealed the Texas First Purchaser Statute (Tex. Bus. & Com. Code § 9.343) and replaced it with the Texas First Purchaser Lien Act (now Tex. Prop. Code § 67.002), effective September 1, 2021. This change is designed to give mineral interest owners in Texas assets the same kind of automatically perfected and bankruptcy-resistant first-purchaser protections that interest owners in Oklahoma assets have enjoyed for many years. The importance of this change for interest owners is highlighted by a memorandum opinion by United States Bankruptcy Judge Craig T. Goldblatt of the District of Delaware in the case of In re MTD Holdings, LLC, et al.[1]

The now-deleted Texas First Purchaser Statute granted a security interest “in favor of interest owners, as secured parties, to secure the obligations of the first purchase of oil and gas production, as debtor, to pay the purchase price.” The issue presented in MTD Holdings, LLC was whether the lessors and royalty interest holders’ claims in the bankruptcy case were secured claims. The Court, relying on Section 9.343, held that they were not. The Court interpreted the now-deleted First Purchaser Statute to provide a lien only for interest owners who are entitled to and elect to be paid their royalty “in kind” (i.e., delivery of oil and gas products, instead of cash proceeds). And none of the creditors demonstrated that they had elected to be paid their royalties in kind. Accordingly, the Court determined that none of the creditors held claims secured by a lien.

The newly-enacted Texas First Purchaser Lien Act repealed Section 9.343 in its entirety and created a new statute in the Texas Property Code that grants more expansive lien rights to interest owners. The revised language grants to each interest owner a lien to secure that interest owner’s oil and gas rights that attaches to oil and gas before severance and continues to apply to oil and gas after severance and to all proceeds from the sale of the oil and gas. See Tex. Prop. Code § 67.002. Under this new statute, whether the minerals are severed, paid in kind, or sold to a third party, the interest owner will have an automatically perfected lien to secure its rights to payment.

This revision moves Texas more in line with states like Oklahoma, which revised its own First Purchaser Statute in 2010 to similarly provide that a lien attaches to an owner’s interest in the oil and gas property in lieu of a security interest tied to production.

**************************************************************************************************************************************************************************************

[1] Case No. 19-12269, United States Bankruptcy Court for the District of Delaware.

 

The federal Fair Labor Standards Act (“FLSA”) provides for the payment of overtime at the rate of one and a half times an employee’s regular rate of pay for each hour worked in excess of 40 during a 7-day workweek.  There are a number of exemptions to the FLSA’s overtime pay requirements, the details of which are specified in regulations issued by the U.S. Department of Labor.  The most common are the so-called “white collar exemptions” that are available with respect to certain professional (4 year-degreed), executive (supervisor) and certain administrative employees (who must exercise discretion and independent judgment regarding matters of significance related to the management of the employer’s business).  To qualify for the “white collar” exemptions, the FLSA requires that the employee: (i.) satisfy the applicable duties test for the exemption; (ii.) be paid at least $684 per week; and (iii.) (in most cases) that such minimum pay be made to the employee on a guaranteed “salary basis.”  The Department of Labor regulations also provide for a relaxed “duties” test with respect to certain “highly compensated” employees who are paid total annual compensation of $107,432 or more.

The Department of Labor regulations provide that the FLSA overtime exemptions are to be narrowly applied, and that it is the employer’s burden to show that each of the elements required for the exemption are satisfied.  In the recent case of Hewitt v. Helix Energy Solutions Group, Inc. et al.  (No. 19-20023) (5th Cir.  9/9/2021), the Fifth Circuit Court of Appeals reinforced these strict construction principles and held that the FLSA executive overtime exemption will not be allowed if the salary basis payment requirements are not met, even in the case of highly compensated employees.

Michael Hewitt worked for Helix as a Tool Pusher and was responsible for supervising other employees in this position.  Hewitt worked offshore on a rotational “hitch” basis and frequently worked more than 40 hours per week.  There was no dispute that Hewitt’s primary duties were supervisory in nature, such that he met the “duties” test for the FLSA executive overtime pay exemption.  Likewise, his earnings far exceeded the $684 per week minimum earnings threshold.  However, Hewitt was not paid on a salaried basis – but was instead paid on a flat “day rate” of $963 per day worked.  Based on his high rate of pay and the number of days he worked, Hewitt earned well in excess of $200,000 per year.

Despite his high rate of pay, Hewitt filed suit on behalf of himself and other similarly situated employees contending that overtime premium pay was owed by the employer under the FLSA. The federal district granted Helix’s motion for summary judgment and dismissed Hewitt’s claim on the basis that he was a “highly compensated” employee.  Hewitt appealed.  In a contentious 2 to 1 decision (in which the majority and the dissent exchanged barbed quotes from Shakespeare’s Macbeth and Talladega Nights: the Ballad of Ricky Bobby), a three-judge panel of the Fifth Circuit reversed and found that the executive overtime pay exemption did not apply because Hewitt (although highly compensated) did not receive a guaranteed weekly salary.  Helix requested en banc review of the panel decision, which the Fifth Circuit granted.  On September 9, 2021, the Fifth Circuit (by a vote of 12 to 6) issued an en banc decision reversing the district court’s ruling for the employer and held that the FLSA executive overtime pay exemption could not be applied to Hewitt.  The case was remanded to the district court for further proceedings.

In reaching this result, the Fifth Circuit majority relied on a textual application of the FLSA (and relevant Department of Labor regulations).  The Court found that payment of Hewitt on a day rate basis did not satisfy the FLSA salary basis payment requirement because he was not guaranteed the required minimum salary without regard to the number of days or hours he worked.  The majority acknowledged that a Department of Labor regulation (29 C.F.R. 541.604(b)) allows an employer to compensate its exempt employees on a day rate basis (as an alternative to a weekly salary), but only if the pay arrangement also included a minimum weekly pay guarantee without regard to the days and hours worked and the guarantee bears a “reasonable relationship” to the employee’s usual weekly earnings.  The Court explained that an employer cannot meet this alternative requirement by guaranteeing a weekly payment substantially lower than the employee’s regular earnings because that would render the salary “illusory” (the majority reasoned that Helix could have met this requirement on these facts by guaranteeing Hewitt $4,000 per week).  In this case, no weekly wage guarantee was provided by the employer.  Therefore, the majority concluded that this Department of Labor regulation did not apply, and the day rate compensation method used by the employer did not satisfy the executive employee exemption.  Accordingly, Hewitt could not be treated as an overtime exempt employee.

Notwithstanding the harsh results for the employer on the facts of this case, the Court rejected the employer’s arguments that a highly compensated employee like Hewitt should not be entitled to overtime pay – without regard to the salary basis requirement:

“Our job is to follow the text—not to bend the text to avoid perceived negative consequences for the business community. That is not because industry concerns are unimportant. It is because those concerns belong in the political branches, not the courts. ‘We will not alter the text in order to satisfy the policy preferences’ of any person or industry. Barnhart v. Sigmon Coal Co., 534 U.S. 438, 462 (2002). ‘These are battles that should be fought among the political branches and the industry.’ Id.”

The Court also explained that its literal application of the FLSA to highly compensated energy industry workers is consistent with the approach taken by the Sixth and Eighth Circuit Court of Appeals, as well as a growing number of federal district courts considering these issues.  The fact that 8 of the 12 Fifth Circuit Judges who voted in Hewitt’s favor were Republican appointees, including the author of the majority opinion, Judge Ho (a 2018 Trump appointee), makes clear that this decision is not an anomaly in what is considered one of the most conservative, employer friendly Circuit Courts in the country, and that employers cannot rely on a high level of employee compensation as a substitute for technical FLSA compliance.  An amicus brief filed in support of Helix’s position estimated that Hewitt might be owed at least $52,000 per year in unpaid overtime.

Under the FLSA, an employee can recover the amount of overtime pay owed (for a period of up to 3 years), an equal amount of “liquidated damages” and attorney’s fees.  FLSA claims are often pursued on a collective action basis (a form of opt in class action – in which current and former employees can join).  The exposure presented by FLSA claims is significant, and underscores the importance of employers carefully reviewing their pay practices for FLSA compliance – and to strongly consider whether highly compensated employees who they intend to treat as overtime exempt should be paid on a salaried basis.

On August 23, 2021, the FDA announced the Pfizer COVID-19 vaccine is now fully approved.  With this news, more and more employers are adopting, or considering whether to adopt, vaccine mandates for their workforces.  One issue that a vaccine mandate raises is whether employers can lawfully ask job applicants about their COVID-19 vaccination status after they have adopted a vaccine requirement.  The short answer is that yes, you can, but it is advisable to wait to ask about an applicant’s vaccination status until after extending a conditional job offer.

Under the Americans with Disabilities Act (“ADA”), employers may not ask job applicants questions that are likely to reveal the existence of a disability before making a job offer.  The administrative agency charged with enforcement of the ADA, the federal Equal Employment Opportunity Commission (“EEOC”), issued guidance on a number of COVID-related legal issues earlier this year, and among the questions addressed was whether its legal to ask employees whether they are vaccinated.  The EEOC clarified that inquiring about vaccination status alone is not asking a question that is likely to reveal the existence of a disability, because there are many reasons why an employee may not be vaccinated besides having a disability.

While asking the vaccination question alone is not a disability-related inquiry, any follow-up questions could reveal the applicant has not been vaccinated due to a disability or religious objection.  Or, the applicant may simply volunteer this information as an explanation for why they are not vaccinated.  Interviewers need to avoid these types of inquiries or voluntary disclosures because they raise a risk of an unselected applicant suing for disability discrimination under the ADA or for religious discrimination under Title VII of the Civil Rights Act.

To eliminate these risks, employers could instead avoid asking about vaccination status until after extending a job offer that is conditional upon showing proof of vaccination, absent a need for reasonable accommodation for a disability or sincerely-held religious beliefs against vaccination.

So, what about Texas’s ban on “vaccine passports”?  Does this impact the analysis?  The short answer is, no, not for private employers.  On June 7, 2021, Texas Governor Greg Abbott signed into law new legislation that prohibits government entities from requiring proof of vaccination from individuals and strongly discourages private business from requiring that customers be vaccinated.  The Texas law simply does not apply to a private employer’s ability to require or encourage COVID-19 vaccinations for employees.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

On August 13, 2021, the Occupational Safety and Health Administration (OSHA) updated its COVID-19 guidance for non-healthcare employers.  The updates to OSHA’s “Protecting Workers: Guidance on Mitigating and Preventing the Spread of COVID-19 in the Workplace” publication follow the CDC’s July 27, 2021 updated mask and testing recommendations for fully vaccinated people.

Some key takeaways:

  • OSHA now recommends masks in indoor spaces in areas of substantial or high COVID-19 infection – even for fully-vaccinated employees and including customers and other visitors.
    • Of note, the CDC has currently designated about 94% of the country as areas of substantial or high COVID-19 infection.
    • OSHA recommends employers provide masks to employees who request them free of charge.
  • OSHA recommends that employers help facilitate employees to get vaccinated, including, for example, giving paid time off to get vaccinated and to recover from any side effects.
  • OSHA “suggests that employers consider adopting policies that require workers to get vaccinated or to undergo regular COVID-19 testing – in addition to mask wearing and physical distancing – if they remain unvaccinated.”
    • Note that employers issuing vaccination mandates must keep in mind their duties of reasonable accommodation for employees who have a medical condition or sincerely held religious belief that would preclude vaccination.
  • If a fully vaccinated employee has a known exposure to COVID-19, OSHA recommends the employee (a) get tested 3-5 days after the exposure, and (b) wear a mask in indoor spaces for 14 days or until they receive a negative test result.
  • And for employees who are not fully vaccinated with a known exposure to COVID-19, OSHA recommends (a) the employee quarantine at home, (b) be tested immediately, and (c) if negative, tested again in 5-7 days after last exposure or immediately if symptoms develop during quarantine.

OSHA guidance is not a regulation; rather, it is advisory in nature and does not have the full force of law.  Nevertheless, because employers have a general duty to protect the health and safety of their workers, following OSHA’s guidance is generally advisable.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

“Long COVID” or “long-haul COVID” are terms coined to describe a range of new or ongoing systems that can last weeks or months after first being infected with the COVID-19 virus.  The CDC’s website lists many commonly reported symptoms among “long haulers,” which list includes:

  • Difficulty breathing or shortness of breath
  • Tiredness or fatigue
  • Symptoms that get worse after physical or mental activities
  • Difficulty thinking or concentrating (i.e., “brain fog”)
  • Cough
  • Chest or stomach pain
  • Headaches
  • Heart palpitations (fast-beat or pounding heart)
  • Joint or muscle pain
  • Pins-and-needles feeling
  • Diarrhea
  • Sleep problems
  • Fever
  • Dizziness/lightheadedness
  • Rash
  • Mood changes
  • Changes in smell or taste
  • Changes in menstrual cycles

Employers must now consider whether employees reporting ongoing physical and/or mental impairments following a COVID-19 diagnosis will qualify as “disabled” under the Americans with Disabilities Act (“ADA”).  On July 28, 2021, the U.S. Department of Health and Human Services (“DHHS”) and U.S. Department of Justice (“DOJ”) jointly issued guidance explaining that long COVID may be a disability under provisions of the ADA applicable to state and local government and public accommodations (respectively, Titles II and III), among other federal statutes.

Although the guidance did not expressly apply to Title I of the ADA, which applies to private employers, the guidance is nevertheless useful to private employers in assessing whether long COVID sufferers qualify as disabled – because the definition of “disability” is the same under every title of the Act.

The July 28 joint guidance explains that long COVID is not necessarily a disability – but it may be.  The guidance instructs that an individualized assessment is necessary to determine whether a person’s symptoms “substantially limit” one or more “major life activities,” as those terms are defined in the ADA, which would deem a person disabled within the meaning of the Act.  The guidance then gives some examples of when long COVID could qualify as a disability, including aggregations of symptoms that substantially limit individuals in the major life activities of respiratory function, gastrointestinal function, and brain function.  The guidance further notes that “[e]ven if the impairment comes and goes, it is considered a disability if it would substantially limit a major life activity when the impairment is active.”

The U.S. Equal Employment Opportunity Commission (“EEOC”) is the administrative agency responsible for enforcing the employment provisions of the ADA under Title I.  To date, the EEOC has not addressed long COVID in its COVID-related resources.  However, the DHHS and DOJ’s July 28 joint guidance is still instructive and private employers should be mindful that those employees complaining of long COVID symptoms may qualify as “disabled” under the ADA and require reasonable accommodation.

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com

With many employees shifting to work remotely long-term in the wake of the COVID-19 pandemic, employers must be mindful of how to comply with their employment-law posting requirements vis-à-vis their remote workers.  The commonly used laminated collage of posters hanging on an employee bulletin board back at the office will not suffice for these workers.  So how does one comply?  The U.S. Department of Labor’s Wage and Hour Division has issued a Field Assistance Bulletin (“FAB”) [https://www.dol.gov/sites/dolgov/files/WHD/legacy/files/fab_2020_7.pdf] that provides guidance on how to comply electronically, and the answer is not as easy as simply emailing remote workers a single copy of the required posters.

By its own terms, the FAB applies to the poster obligations of four federal statutes, including the Fair Labor Standards Act (“FLSA”), Family and Medical Leave Act (“FMLA”), Employee Polygraph Protection Act (“EPPA”) and the Service Contract Act (“SCA”), but its guidance should prove helpful for compliance with other federal, state and local employee poster requirements.

Because several employment statutes require continuous posting (using language such as “post and keep posted” or provide notice “at all times”), the FAB explains that a single mailing of the requisite poster to employees is insufficient.

Where employers have both remote and on-site workers, hard-copy posting in company offices/facilities should continue, with electronic posting supplementing the hard-copy posting for those employees who work remotely.  Additionally, electronic substitution for the continuous posting requirement will be acceptable only where (a) employees customarily receive information from the employer via electronic means, and (b) employees have ready access to the electronic posting.

Whether posting on an intranet site, internet website, shared network drive, or other electronic file system will suffice will depend on the particular facts involved with each employer – with the key determination being whether affected employees can readily access the posting.  Key factual issues to keep in mind, include:

(1) access should be available without having to specifically request permission to view a file or access a computer;

(2) affected workers should be notified where and how to access the notices electronically; and

(3) affected workers should be able to easily determine which postings are applicable to them.

As the FAB explicitly warns, “[p]osting on an unknown or little-known electronic location has the effect of hiding the notice, similar to posting a hard-copy notice in an inconspicuous place, such as a custodial closet or little-visited basement.”

Because some statutes, such as the FMLA and EPPA, require notice to applicants as well, employers who interview and hire remotely will need to be sure to make such notices readily available electronically to applicants, in addition to employees.

Both the U.S. Department of Labor’s and the Texas Workforce Commission’s websites include additional helpful guidance on employer poster and recordkeeping duties, with links to the requisite posters for free downloading and printing (with many posters available in multiple languages):

For further information on this topic, please reach out to blog author, April Walter, at april.walter@keanmiller.com