MASSACHUSETTS ISSUES NEW STANDARDS REGARDING PERSONAL INFORMATION
By Zack Tuck
In September, the Office of Consumer Affairs and Business Regulation promulgated a new regulation, 201 CMR 17.00, titled Standards for the Protection of Personal Information of Residents of the Commonwealth. This regulation, which was enacted in the wake of a serious security breach at TJX Cos., creates minimum standards for the manner in which businesses handle personal information. Businesses must comply with the new law as of January 1, 2009.
Personal information is defined as: [A] Massachusetts resident’s first name and last name or first initial and last name in combination with any one or more of the following data elements that relate to such resident: (a) Social Security number; (b) driver’s license number or state-issued identification card number; or (c) financial account number, or credit or debit card number, with or without any required security code, access code, personal identification number or password, that would permit access to a resident’s financial account. This does not include information that is publicly available.
Because all employers normally store personal information about each employee, all employers who employ a resident of Massachusetts will be required to comply with the regulations. Of course, those who maintain personal information about customers must also be in compliance.
The regulations require employers to adopt several new policies. For example, each employer must have a comprehensive, written information security program applicable to all records that contain personal information about a Massachusetts resident. Employers should be sure to identify which of its records contain personal information so that it can be sure to protect those records in a manner that complies with the regulations.
The regulations further require that employers limit access to personal information only to those persons who are reasonably required to have access in order to accomplish a legitimate business purpose, or to comply with other state or federal regulations. In addition, employers must train those employees that have access to personal information to know what their obligations are regarding protecting such information.
The regulations also require that an employer’s computer system (to the extent it maintains confidential information) complies with certain encryption requirements. Any security program must also use up-to-date firewall protection. It may be necessary for some employers to consult with an outside IT professional to set up user identification protocols, secure access control measures, and firewalls.
The standard by which an employer’s compliance will be judged will be based on the size and scope of the business, the amount of data the business stores, and the need for confidentiality. Each business will be judged on a case by case basis. However, there is a possibility that violators could be subject to enforcement by the attorney general’s office, or a private cause of action, which could include double or treble damages under Massachusetts General Laws chapter 93A.
For more information on how businesses can come into compliance with 201 CMR 17.00, please review the Compliance Checklist issued by the Office of Consumer Affairs and Business Regulation at http://www.mass.gov/Eoca/docs/idtheft/compliance_checklist.pdf.
By Brian Davidoff
The economy, based on the news and our pocketbooks, is going through hard times. That means that more companies are filing bankruptcy. A common question posed to me by both my professional friends and clients is whether or not payments they have received from a company that has filed a bankruptcy are subject to recovery as preferences.
In general, a “preference” exists when a debtor makes a payment or other transfer to one or more, but not all, creditors. While, outside of bankruptcy, there is nothing illegal or improper about that, in bankruptcy such favoritism is prohibited. The preference sections of the Bankruptcy Code impose upon the debtor an obligation to treat its creditors fairly once the threat of an impending bankruptcy becomes apparent. To implement this policy, ?547(b) of the Bankruptcy Code permits a bankruptcy trustee to avoid certain pre-bankruptcy transfers as preferences. The debtor’s intent or motive is irrelevant as to whether a preference exists. Generally speaking, it is the effect of the transaction, rather than the debtor’s intent, that matters.
Elements of a Preference
In order for a payment to be recovered as a preference, the following tests must be met:
1. A transfer of an interest of the debtor in property;
2. To or for the benefit of a creditor;
3. For or on account of an antecedent debt owed by the debtor before the transfer was made;
4. Made while the debtor was insolvent;
5. Made within 90 days prior to the filing of the bankruptcy petition, or made within one year prior to the filing of the bankruptcy if the payment was to an insider;
6. Enables the recipient to receive more than the recipient would have received if the case were a Chapter 7 liquidation.
Some discussion of each of these elements follows.
1. Transfer of an interest of the debtor in property.
This definition is intended to be as broad as possible, whether the transfer is by means of a direct payment, the creation of a lien, or even a foreclosure, whether voluntary or involuntary. Accordingly, this definition would include the simple payment by debtor of a creditor’s bill, as it would include a judgment lien obtained by a creditor from a court of law.
2. To or for the benefit of a creditor.
A “creditor” is an entity that had a claim against the debtor that arose before the filing of the bankruptcy. The fact that one needs to be a “creditor” of the debtor demonstrates that not all payments made within the prescribed look back time period are preferences. If the recipient is not a pre-existing creditor at the time of payment, then, while the payment may be improper for some other reason, it is not a preference.
3. For or on account of an antecedent debt.
An antecedent debt is a debt that existed before the transfer was made. The distinction here is to avoid favoritism among the debtor’s creditors of who will get paid first. The delivery of goods contemporaneous with the receipt of a payment is not a preference since, at that time the recipient of the payment is neither a creditor nor has the payment been made on account of an “antecedent” debt.
4. Made while the debtor was insolvent.
The transfer must have been made while the debtor was insolvent. Insolvency means that the debtor’s debts are greater than the fair value of all of its assets. A rough balance sheet test is the determining factor of whether insolvency exists.
5. Within the reach back period.
The transfer must have occurred within 90 days prior to the filing of the bankruptcy petition or, if the transfer was to an insider, then made within one year prior to the bankruptcy petition. What happens however, if an obligation is guaranteed by an insider? For example, what if the principal of a company guarantees the debtor’s bank and the bank is paid more than 90 days, but less than one year, prior to the bankruptcy filing? In this case, the transfer may be set aside as a preference only as to the insider guarantor. Insiders include those you might suspect: for corporations–officers, directors and controlling shareholders; for partnerships–general partners; and, for individuals–members of the individual’s family.
6. Resulting in a greater distribution than in a Chapter 7.
In order to be set aside as a preference, the transfer must result in the creditor receiving more than the creditor would in a Chapter 7 liquidation. This means that secured creditors who are entitled to receive their property in a Chapter 11 or a Chapter 7 are usually likely to be exempt from the preference sections of the Bankruptcy Code.
Even assuming that the transfer satisfies all of the above tests, recipients in business transactions can rely on some well established defenses to preferences.
1. Contemporaneous Exchange Defense.
A payment may not be recovered as a preference to the extent that the payment was intended by the debtor and the creditor to be a contemporaneous exchange for new value and, in fact, was a substantially contemporaneous exchange. Thus a transfer which would otherwise be considered to be preferential is insulated from attack if (1) the recipient extended new value (such as delivery of new product, or for example, the release of a lien) to the debtor, (2) the recipient and the debtor intended the new value and reciprocal payment to be contemporaneous, and (3) the exchange was in fact contemporaneous.
2. Payments in the ordinary course of business.
A trustee may not avoid a transfer to the extent that the transfer was in payment of a debt incurred by the debtor in the ordinary course of business between the debtor and the transferee and made according to ordinary business terms. Courts have interpreted this requirement by examining whether there was anything “unusual” about the underlying transaction. For example, courts examine the length of time that the parties were engaged in business, whether the amount or form of the transaction differed from past practices, whether the debtor and creditor engaged in any unusual collection or payment procedures, and other relevant circumstances.
3. Transfers for subsequent new value.
The trustee may not avoid a transfer to the extent that, after the transfer, the recipient gave new value to the debtor. In other words, even though a creditor has received a preference payment, the creditor may still offset the preference against any subsequent, unsecured credit that the creditor provided to the debtor after receipt of the payment. New value is defined as money or money’s worth in goods, services or new credit or the release by a transferee of property previously transferred.
Ordinarily, in evaluating the new value defense, an analysis is undertaken of all of the debit and credit transactions between the debtor and the creditor until a final balance is established prior to the bankruptcy.
Defendants rank preference suits among the most unwelcome of all litigation. Not only is the defendant usually already unpaid for goods or services provided to the bankrupt company, but now a demand is made on them for a further recovery. A proper analysis of the claims and defenses can yield an improved outcome.
The bankruptcy group at Rutter Hobbs & Davidoff represents clients in defending preference and other avoidance actions by trustees.
Brian Davidoff is an attorney at Rutter Hobbs and Davidoff in Los Angeles. Rutter Hobbs and Davidoff Incorporated and Rudolph Friedmann LLP are both members of the International Society of Primerus Law Firms.
John Moorman recently returned from Torino, Italy where he traveled to play soccer against the Juventus F.C. Veterans, one of Italy’s most prominent and one of the most well known soccer teams in Europe. John is a member of a team called the Boston Braves F.C., which is a soccer team comprised of mostly former professional and semi-professional soccer players over the age of 35, but still play competitively. Their goal is to promote the interests and participation of Veterans soccer throughout the world, with plans to have a World Cup of Veterans in 2010 here in the United States. To date, John has traveled to Spain, Russia, Holland, France, Brazil, Mexico, England and Italy, playing against such well known soccer clubs as Barcelona F.C., Real Madrid, Dynamo Kiev, CSKA, AJAX, A.S. Monaco, Santos (Pele’s former team), Botafogo, Club America, Cruz Azul, Manchester United, Liverpool F.C., Chelsea F.C., and most recently Juventus F.C. The Boston Braves next trip is scheduled for March, where they will travel to Argentina to play against the Boca Juniors, Diego Maradona’s former team, and River Plate.
In September, Jim Singer was re-elected to his 4th term as President of the Board of Directors of Camp Avoda , Inc., a non- profit summer camp in Middleboro, MA. Camp Avoda is the oldest Jewish boys camp in New England. Jim and his 2 sons attended the Camp as both campers and counselors.
Jim Rudolph recently traveled to Poland with several National leaders of the Anti-Defamation League and over 150 soldiers from the IDF (Israeli Defense Forces). The trip included stops in Krakow and Warsaw, where the group met with the US Ambassador to Poland and saw many of the historical sites. Several of the Nazi death camps were visited, including Chelmno, Madjanak and Auschwitz. RF Client Steve DiFillippo (Davio’s Restaurants) and RF friend George Regan (Regan Communications) were also on the trip, along with ADL National Director, Abe Foxman, who is a