LEGAL ISSUES FOR AMCS AND THEIR CLIENTS

1. LEGAL ISSUES FOR AMCS AND THEIR CLIENTS C. Michael Deese Howe & Hutton, Ltd. Washington, DC February 15, 2013 cmd@howehutton.com

2. AMC ISSUES TO BE ADDRESSED • ACCREDITATION UPDATE • EMPLOYEE HANDBOOK “CONTRACTS” • AVOIDING CLIENT TRANSITION PROBLEMS • Incoming • Outgoing

3. CLIENT ISSUES TO BE ADDRESSED • NONPROFIT CORPORATION LAW CHANGES • HANDLING DIRECTOR CONFLICTS OF INTEREST • USE AND MISUSE OF BOARD EXECUTIVE SESSION • CHAPTER RELATIONSHIPS • ANTITRUST DEVELOPMENTS

4. ACCREDITATION UPDATE • AMCI’s ANSI standard being revised • Canvass process almost complete • Changes could be effective by mid-year • Applies to new accreditation and reaccreditation after effective date

5. ACCREDITATION UPDATE • Changes to the standard include: • 3.1: Written contract with clients required; not just whenever feasible • 3.6: Client contract must address client and AMC IP rights re materials and software systems • 4.6: AMC must have a policy for advising clients regarding protection of client IP

6. ACCREDITATION UPDATE • Changes to the standard include: • 4.7: AMC must have written social media policies for AMC and clients • 6.7: If AMC recommendation to client board regarding CGL and APL insurance is declined, must be recorded in board minutes • 10.6: AMC must disclose conflicts of interest regarding purchases with client funds

7. ACCREDITATION UPDATE • Changes to the standard include: • 11.1: Record retention policy specifically applies to electronic records as well as hard copy documents • Not a change, but important: • 11.3: AMC must have written business continuity plan (data back-up; communication plan; evacuation plan; alternate site)

8. ACCREDITATION UPDATE • AMCI Best Practices Document • Revised February 9, 2011 • Goes well beyond ANSI Standard • Identifies substantive issues with which an AMC owner is expected to be familiar • Client relations; financial management; technology; human resources; legal; business leadership (running your AMC)

9. EMPLOYEE HANDBOOK “CONTRACTS” • December 2012 Illinois federal court decision • Employee handbook disclaimer (“handbook not an enforceable contract, may be changed at any time by employer, etc.”) may not always be effective • Handbook terms may be an enforceable “agreement,” even if not a contract, as long as in effect

10. AVOIDING TRANSITION PROBLEMS • Plan in Advance • Address incoming transition in response to RFP and in management agreement • Address outgoing transition in management agreement • Required by ANSI standard (3.5)

11. INCOMING TRANSITIONS • Should be part of your response to an RFP • Avoid tortious interference claim • Also address in management agreement • Requires outgoing management cooperation • More than a checklist • Transfer of functions over time • Does not happen all at once

12. INCOMING TRANSITIONS • Due diligence before deciding to take on new client requires inquiry regarding: • Corporate good standing in appropriate jurisdictions • Tax filings up to date • Pending or threatened lawsuits • Insurance in place • Accurate picture of staff hours expended • IT compatibility/difficulty (website; database and files within database; conversion of financial history)

13. INCOMING TRANSITIONS • Transition fees are important • Determine current management “attitude” • Incoming transition fees should reflect: • Services almost always more than expected • Underbidding leads to understaffing and level of service below what is required • Inadequate service leads to client dissatisfaction • Client should expect to pay 2 AMCs during transition

14. INCOMING TRANSITIONS • Dealing with uncooperative current management • Personal relationships with management and IT provider can be helpful • Using “back door” to obtain client data • Using legal counsel as a last resort

15. OUTGOING TRANSITIONS • Address in management agreement • Termination notice provisions (90-120 days) • AMC service through termination date • Client payments through termination date • Anticipate need for a transition agreement • BE “NICE”

16. OUTGOING TRANSITIONS • Transition Agreement • Transfer of management functions over time • Document everything transferred (3.5.1.) • Retain financial responsibility until specified date • Audit upon conclusion (3.5.6.) • Transition services description and fees • Guaranteeing payment to AMC • More difficult if client controls funds • Separate account for management fee funds • AMC taking funds in advance

17. OUTGOING TRANSITIONS • Avoid losing clients to employees • Law varies by state • Address in employment agreement or handbook • Consideration and signature required • Non-compete vs. client specific restriction • Must be reasonable • Restriction upon use of confidential information • Define what is confidential • Easier to enforce than non-compete • Address in client contract (“no raid” provision)

18. NONPROFIT CORPORATION LAW CHANGES • Vary by jurisdiction • Jurisdiction of client incorporation governs • Major types of changes include: • “Default” provisions (notice, Board terms, power to amend bylaws, etc.) • Limitation of liability of volunteers if so provided in Articles of Incorporation

19. NONPROFIT CORPORATION LAW CHANGES • Major types of changes include: • Notice of meetings, elections and board unanimous written consent now permitted electronically almost everywhere • Board action by email now permitted in CO, GA, ND, TN and WI • TX allows a non-voting director to serve without having fiduciary duties

20. NONPROFIT CORPORATION LAW CHANGES • AMC should undertake a review of client organizing documents to determine whether changes in applicable law permit articles or bylaw amendments that would be beneficial to the client

21. HANDLING DIRECTOR CONFLICTS OF INTEREST • Clients should have COI Policy and required disclosure • To whom does COI Policy apply? • Include instruction in new director orientation • COI is OK; undisclosed COI is not • Disclosure annually plus as a conflict arises • Logistics of disclosure process important • Director personal liability for approval of interested party transaction (New York case)

22. BOARD EXECUTIVE SESSION • What do we mean by “executive session”? • Open vs. closed board meetings • Executive docket • Executive session at every board meeting or only when necessary • Who remains in the board room? • Appropriate topics (COI, AMC contract) • How to go into executive session • Danger of misuse, particularly in trade associations in concentrated industries

23. CHAPTER RELATIONSHIPS • To incorporate or not to incorporate • Effect upon chapter officers and directors • Worst case: unincorporated, separate entity • How to minimize national liability for acts of the chapter • Treat as part of the national (assume responsibility) and control activities tightly • Treat as separate entity without actual authority and minimize apparent authority (require disclosures)

24. CHAPTER RELATIONSHIPS • Evaluate insurance coverage under national’s policies • Affiliation agreement necessary to control national’s intellectual property • Separately incorporated chapters may be included within national’s group tax exemption

25. ANTITRUST LAW DEVELOPMENTS • Class action certified against titanium dioxide producers in price-fixing case • Allegation that price increases corresponded with trade association meeting dates • Trail scheduled in federal court in Maryland for September, 2013

26. ANTITRUST LAW DEVELOPMENTS • FTC action against ductile iron pipe fitting manufacturers still pending against 2 manufacturers • Allegation that association facilitated agreement to monopolize and fix prices through the exchange of monthly sales and production volume information • One alleged co-conspirator settled

27. ANTITRUST LAW DEVELOPMENTS • Heightened enforcement risk for trade and professional associations in Canada • 2 recent cases by Canadian Competition Bureau • Toronto Real Estate Board • Canadian Wireless Telecommunications Association • Interim Commissioner of Competition remarks • Using standards to limit competition or raise barriers to entry • Using information exchanges to reduce incentives to compete

28. ANTITRUST LAW DEVELOPMENTS • Issue for AMCs, particularly those managing trade associations: • Both private and government lawsuits are back • Plaintiffs are looking at associations as fertile ground for conspiracies • Antitrust compliance policies more important than ever • AMC staff must be aware of the law and of how to stop a meeting if necessary • Check APL insurance policy for antitrust sublimit

29. THANK YOU C. Michael Deese Howe & Hutton, Ltd. 1901 Pennsylvania Avenue, N.W. Washington, DC 20006 (202) 466-7252 cmd@howehutton.com