Articles Posted in Business & Corporate Law

On June 28, 2023, the Indiana Supreme Court clarified the meaning of the word “invest” in the context of a contract between a public school corporation and a private company regarding the development and operation of a wind turbine project.  The contract obligated the school to make payments over a 20-year period totaling nearly $1.6 million. In exchange, the school would have access to the project for educational purposes and receive a share of the net operating revenue. The project was completed, but it never realized any such revenue.  The school’s refusal to make any contract payments led to a lawsuit.

Indiana law prohibits public entities, such as school corporations, from making investments other than those expressly authorized in the statute. A wind turbine project is not a listed exception. Because unauthorized investments are unenforceable, the central issue in the case was whether this venture constituted an investment or a valid private contract.

The trial court held the contract was illegal. But in the developer’s appeal of that ruling, a divided panel of the Court of Appeals reversed, finding it was a valid contract.

The FCC recently adopted broadband privacy rules which will be implemented on a staggered schedule. The FCC did not provide calendar dates for implementing the rules and some of the dates are based on pending PRA approvals. The following is a summary of the new privacy rules and the dates they are scheduled to take effect.

On January 3, 2017, sections 64.2010 and 64.2011(a) became effective. Section 64.2010 pertains to the Business Customer Exemption for Provision of Telecommunications Services other than BIAS, and states that Telecommunication carriers can utilize other contractual privacy and data security regimes for services other than BIAS as long as the issues of transparency, choice, data security, and data breach are addressed. There must also be a mechanism for the customer to communicate concerns to the carrier. Section 64.2011(a) pertains to BIAS Offers Conditioned on Waiver of Privacy Rights and states that a BIAS provider cannot condition providing BIAS on a customer’s agreement to waive privacy rights, nor may a BIAS provider terminate or refuse to provide service based on a customer’s refusal to waive their privacy rights. Section 64.2011(b) is not effective until on or after December 4, 2017, as discussed below.

On March 2, 2017, new section 64.2005 replaced old sections 64.2009 (Safeguards required for use of customer proprietary network information) and 64.2010 (Safeguards on the disclosure of customer proprietary network information). Section 64.2005 covers data security, states a carrier must take reasonable measures to protect customers’ proprietary information, and lists four  factors for determining reasonableness—the nature and scope of the carrier’s activities, the sensitivity of the data, the size of the carrier, and technical feasibility.

On November 2, 2016, the Federal Communication Commission (FCC) released their broadband privacy protection order, which came almost 18 months after the FCC reclassified broadband internet service (BIAS) as a common carrier telecommunication service under Title II of the Communications Act (the Act). The order communicates three main goals to be accomplished via the expanded consumer privacy standards: transparency, choice, and security for customers.

The FCC explained that expanded privacy protections for consumers are necessary because ISP’s have “untethered” access to their customer’s internet information. The order broadened the definitions of “telecommunications carrier” to include all carriers providing telecommunications services subject to Title II and “customer” encompassing current, former, and applicant customers. Three types of customer propriety information (PI) are included within the scope of the new rules: customer proprietary network information (CPNI); personally identifiable information (PII), defined as “any information that is linkable to an individual or device”; and “content of communications”, defined as “any part of the substance, purport, or meaning of a communication or any other part of a communication that is highly suggestive of the substance, purpose, or meaning of a communication.” Any “de-identified” data is not subject to the new rule.

To accomplish transparency, the FCC adopts privacy policy notice requirements mandating that ISPs provide easy access to “clear and conspicuous, comprehensible, and not misleading information about what customer data the carriers collect, how they use the data, who it is shared with and for what purposes”, including the categories of entities to which the carrier discloses access to customer PI, and “how customers can exercise their choices regarding privacy options.” These notices must be provided at the point of sale prior to purchase and advanced notice of material changes must be provided to existing customers.

Section 253(c) of the Communications Act, as amended in 1996, prohibits any “state or local statute or regulation, or other state or local legal requirement” to “have the effect of prohibiting the ability of any entity to provide interstate or intrastate telecommunications” including wireless communications.   This is commonly referred to as local government having barriers to entry.  The FCC is asking for public input on ways in which the Commission promotes wireless infrastructure deployment through a declaratory ruling. Many wireless providers are deploying small cell and distributed antenna systems (DAS) to meet the needs for coverage and to increase capacity. The facilities used in these networks are smaller and less obtrusive than traditional cell towers and antennas, but must be deployed more densely to function effectively. This has led to substantial increases in volume of applications for deployment for local land-use authorities, and the number of applications will likely accelerate as mobile data traffic is expected to grow by five times by 2022.

Mobilitie, LLC petitioned the FCC to issue a declaratory ruling interpreting three phrases in §253(c) of the Communications Act of 1934 to speed the deployment of advanced wireless infrastructure.  Mobilitie recommends the FCC interpret “fair and reasonable compensation” to mean only charges that enable a locality to recoup its costs related to issuing permits and managing the rights of way and that additional charges are unlawful. That “competitively neutral and nondiscriminatory” be interpreted as charges that do not exceed those imposed by other providers for similar access. And that “publicly disclosed by such government” obligate localities to make available the charges they previously imposed on others to a provider seeking access to the rights-of-way. Mobilitie thinks interpretation is necessary because they have dealt with varying types of fees from localities across the nation that seem exorbitant.  Fees have included application fees ranging from $1,000 to $10,000; annual per-pole fees up to $30,000 for each pole; percentage-of-revenue fees which have exceeded what localities can charge cable providers under federal law; fiber fees which have ranged from $0.19 per foot per year to fees based on fair market value of adjacent private property; and third-party manager fees.

The FCC is interested in comment, including updated information to help the Commission evaluate whether further action is warranted. This includes which actions (or inactions) of local government have hindered introduction of new services, obstructed efforts to improve existing service, or deterred prospective providers from entering the markets. The Commission requests specific information and detailed explanations, with greater weight given to systematic data. Specifically, how much time elapses between filing an application and approval or denial? How often are applications approved or denied and on what basis?

Many nonprofit organizations in Indiana have either a duty or a policy of disclosing minutes of board meetings upon the request of certain stakeholders and allowing stakeholders to attend board meetings.  Often, this duty arises under state law, such as the general Non-Profit Corporation Act, if applicable, or the specific act under which the organization is organized, such as the Rural Electric Membership Corporation Act codified at Ind. Code ch. 8-1-13 (the “REMC Act”).  Transparency is generally a good thing.  It fosters open dialog among stakeholders and it leads to a more accountable board.  However, the organization must also protect its competitively sensitive information, as well as the privacy and dignity of its employees and stakeholders.

Therefore, the board of any nonprofit organization should understand how to effectively use Executive Session to balance the policy of transparency with need to protect sensitive information.  The board must also understand how to appropriately document and maintain a record of the discussions that do occur in Executive Session.

The board should use Executive Sessions for robust discussion of matters that should not be discussed in a public forum.  So what matters should not be discussed in a public forum?

The Indiana Court of Appeals recently revisited the “blue-pencil” doctrine in Clark’s Sales and Services, Inc., vs. John D. Smith and Ferguson Enterprises, Inc., 4 N.E.3d 772 (Ind. Ct. App. 2014), which concerned an employment agreement containing a restrictive covenant/noncompetition provision. Based on the employee’s (“Smith”) fourteen-year career with the former employer and Smith’s access to confidential information, the court found a protectable interest before moving onto the reasonableness of such restrictions.

The court found these particular clauses were unreasonable in both the scope of activities covered and geographic area. The clauses prohibited Smith from “providing services competitive to those offered by [employer], or those provided by Smith on behalf of [employer] to anyone who was a customer of [employer] during the term of Smith’s employment.” This clause was unreasonable because it applied to all customers regardless of whether Smith had any contact with them; applied to Smith’s entire term of employment with the employer; and the prohibited activities were unrelated to what Smith actually performed.
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On March 3, 2014 the Indiana Court of Appeals clarified that shareholders cannot be held personally liable for attorney fees in a wrongful stop payment of a check under Indiana Code section 26–2–7–5 unless the corporate veil can be pierced. CBR Event Decorators, Inc. v. Gates, 4 N.E.3d 1210 (Ind. Ct. App. 2014). In CBR I, the court held that the corporate veil could not be pierced in this case, but created some confusion in dicta about whether the shareholders were still liable for attorney fees. 962 N.E.2d 1276 (Ind. Ct. App. 2012). The court clarified in CBR II that the shareholders are not personally liable absent successful piercing of the veil, or in cases where the shareholders have otherwise been found personally liable for the wrongful stop payment.

Jeremy Fetty is a partner in the law firm of Parr Richey Frandsen Patterson Kruse with offices in Lebanon and Indianapolis. He often advises businesses and utilities (for profit, non-profit and cooperative) on organizational, human resources, and transactional matters and drafts and reviews commercial contracts.

The statements contained herein are matters of opinion and general information only and are not to be considered legal advice and should not be construed to form an attorney-client relationship. If you have any questions regarding this article, please contact an attorney.