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Who, what, when, where, how? Important insurance cases decided in New Jersey courts in 2012 covered the full range of questions raised by policy language, law, chance, and human and corporate conduct: Whose property has been damaged (and whose is covered)? What duty does an insurance company or brokerage owe the policyholder? When is coverage triggered? Where should a given case be heard? How does risk get allocated among multiple insurance companies? And of course, what kinds of conduct or occurrences are covered or excluded? Below, a look at the decisions that addressed these questions this year.
Bello v. Merrimack Mutual Fire Insurance Company (App. Div. 2012) is the first major decision on bad faith in New Jersey in almost 20 years. The policyholder had a retaining wall that was damaged during a storm. The insurance company sent an individual who was not an engineer to inspect, and that individual concluded that the damage was caused by long-term neglect and deterioration. As a result, the insurance company denied coverage. The policyholder contacted a superior at the insurance company, who confirmed the denial in June 2008.
However, that same superior had written an internal memo in May 2008, in which he had found that the claim was indeed covered. In fact, the insurance company later reversed itself and paid its policy limit of $100,750. That did not prevent the jury or the appellate court from finding that based on the May memo the disclaimer in June was in bad faith.
The jury awarded damages of $624,023.20, with no setoff for the $100,750.00 that the insurance company had already paid. The court awarded attorneys’ fees of $195,583.34, and costs of $31,346.41. Bad faith is expensive for insurance companies.
cemetery/crematorium. The harvesting took place in 2002–2004, and came to light in 2006. At that point, the family members of the decedents sought damages because of emotional distress.
The cemetery/crematorium sought coverage under its 2003 general liability policy; the 2006 policy had an exclusion for “improper handling.” The New Jersey Supreme Court affirmed the lower court’s denial of coverage. Coverage under a general liability policy is typically triggered by the damage, and not by the acts leading up to the damage. The damage in this case was the emotional distress suffered by the family members when they learned of the theft of body parts in 2006.
Insurance coverage law differs dramatically, and often dispositively, from state to state. Thus, choice of law is often a key element of a coverage analysis. Glasbrenner v. Gulf Insurance Company, 2012 W.L. 103 8913 (D.N.J. March 28, 2012) adds to the uncertainty in choice of law principles in New Jersey.
As background, it is typical for a court to apply the law of the state in which the parties entered into the insurance policy. However, the New Jersey Supreme Court has ruled that in insurance coverage cases involving hazardous waste, the location of the hazardous waste site often controls choice of law analysis. The Supreme Court based its decision on the overriding interest of the state in which the hazardous waste is located in remedying pollution within its borders.
Glasbrenner was a prosaic case involving a box falling on a customer at a Caldor store in New Jersey. Caldor was a New York corporation based in Connecticut with 136 stores in nine states. Since Caldor was in bankruptcy, the insured party, once it obtained a judgment against Caldor, proceeded directly against Caldor’s insurance company. The court applied New Jersey coverage law instead of Connecticut’s to this insurance dispute.
The court’s decision is open to criticism. The Restatement provision on which it relied dealt with property policies that specifically insured real property, and not liability policies, which applied to damage or injury that could occur anywhere. Further, the New Jersey cases on which the court relied concerned hazardous waste sites and the state’s heightened interest, and not a unique, one-time personal injury case.
Confusion still exists over the issue of the assignability of an insurance policy. CPR Restoration and Cleaning Services v. Franklin Mutual Insurance Company, 2012 W.L. 235 5391 (N.J. App. Div. June 21, 2012) clarifies that while one’s status as an insured under the policy is not assignable without the insurance company’s consent, the right to receive proceeds under an insurance policy is freely assignable.
In CPR, a homeowner had a fire and employed CPR to clean up afterwards. CPR’s contract with the homeowner stated that the homeowner assigned his right to receive proceeds from his insurance policy to CPR, and also stated that the insurance company should make direct payments to CPR. However, the insurance company did not sign the contract.
The insurance company refused to make payment to CPR, resulting in litigation. The trial court found for the insurance company, holding that the anti-assignment clause in the insurance policy applied. The Appellate Division reversed.
The Appellate Division found that the insured was not assigning the policy, but only the right to receive payments under the policy. The court relied in part on N.J.S.A. 2A:25-1, which broadly permits assignment of a chose in action. The court further reasoned that once the loss had occurred, the assignment of the right to receive payment did not alter the insurance company’s obligation.
A policyholder seeking indemnification from its insurance company following settlement of an underlying claim must present proof that the settlement included payment of a covered loss. Building Materials Corp. of America v. Allstate Ins. Co., 424 N.J. Super. 448 (App. Div. 2012). In Building Materials, after settling a class action lawsuit in which the claimants alleged potential third-party property damage, the roofing materials manufacturer sought indemnification under an insurance policy that excluded coverage for property damage to the manufacturer’s own products. The insurance company denied coverage, arguing that the settlement was solely for damage to the insured’s own product. Coverage litigation ensued.
The Appellate Division rejected the manufacturer’s argument that it did not have the burden to prove it paid for damage to third-party property. It held that the manufacturer cannot establish a prima facie case of covered loss simply by demonstrating property damage. Rather, the insured has the burden to show that the underlying settlement actually included payment for third-party property damage.
for insurance coverage on behalf of the plaintiff that represented that the construction project had not started. A fire caused damage to the property and the insurance company denied coverage because the policy did not cover existing structures. The plaintiffs sued the insurance broker for negligence and breach of professional standards. The broker replied that the plaintiffs had told him that they had not yet started to build on the property. A jury found for the plaintiffs and the Appellate Division affirmed, finding that the insurance brokerage was negligent for failing to disclose the partial construction on the property. The court also found that the broker’s president was individually liable, since it was his negligence that led to the loss.
leading to increased exposure for brokers.
A general, employee “catch-all” exclusion is not limited by nearby, more specific employee exclusions. Gabriele v. Lyndhurst Residential Community, L.L.C., 426 N.J. Super. 96 (App. Div. 2012) In Gabriele, the additional insured sought coverage for the wrongful death of an employee on a construction site. The policy broadly excluded personal injury to an employee, arising out of or consequent to his or her employment, pursuant to a catch-all exclusion. The policy also excluded specific actions related to “employment matters” such as wrongful termination or discrimination claims. The additional insured argued that the catch-all exclusion was also limited only to employment-related matters. The Appellate Court found that the specific, employment-related exclusions do not inform the general exclusion. Accordingly, the general exclusion was interpreted broadly to exclude insurance coverage for the wrongful death claim.
The prior publication exclusion (sometimes called the first publication exclusion) eliminates insurance coverage for advertising injury “arising out of oral or written publication of material whose first publication took place before” the beginning of the policy period. In order for the republication of unlawful material to fall outside of a prior publication exclusion, the republication must contain new matter that the plaintiff in the underlying liability suit alleges as “fresh wrongs.” C.R. Bard, Inc. v. Liberty Mut. Ins. Co., 473 Fed. Appx. 128 (3d Cir. 2012).
In C.R. Bard, the plaintiff argued that the prior publication exclusion was inapplicable because the allegedly disparaging statements it made during the policy period were not identical to the statements it made prior to the inception of the policy. The defendants countered that the allegedly disparaging statements fall within the exclusion so long as they are substantively similar in content to the prior statements. No New Jersey court had previously addressed the issue. Predicting that the New Jersey Supreme Court would adopt a construction of the prior publication exclusion similar to that of the Seventh Circuit, the Third Circuit rejected plaintiff’s argument. Instead, the Third Circuit held that the allegedly disparaging statements made during the policy period were substantively similar to the content of the statements prior to the policy period and, therefore, were excluded from coverage under the policy.
In a case of first impression, the Appellate Division held that an insurance company that settles with a common policyholder remains liable to its co-insurance companies who have already paid for the policyholder’s defense. Potomac Ins. Co. of Illinois v. Pennsylvania Manufacturers’ Assoc. Ins., 425 N.J. Super. 305 (App. Div. 2012).
In Potomac, the plaintiff’s insurance company brought an action against the policyholder’s other insurance company seeking reimbursement for defense costs incurred by the plaintiff in defending the policyholder in the underlying negligence action. The defendant argued that New Jersey law does not recognize an insurance company’s right to seek contribution directly from another insurance carrier that shared a duty to defend a common policyholder. Rejecting this argument, the Appellate Division held that defendant insurance company’s settlement with the policyholder did not release the defendant from liability for contribution for defense costs. The court reasoned that unlike subrogation, the right to contribution by a co-obligor exists independently of the rights of the policyholder and, therefore, could not be extinguished by agreement with the policyholder.
Potomac is also important as the first New Jersey case to apply the continuous trigger outside of the environmental/toxic tort context.
ii. the Ordinance or Law exclusion should be interpreted narrowly to exclude from coverage only non-catastrophic causes of loss, such as where a structure has become unsafe by reason of deterioration.
Since the plaintiff’s property loss was occasioned by the collapse of the neighboring building, the exclusion was not applicable. Moreover, on remand the Appellate Division instructed the trial court that if the predominant cause of loss is covered, the fact that an excluded cause of loss may also have contributed to the damage does not vitiate coverage.
This year’s noteworthy insurance coverage disputes in New Jersey touched on a wide range of perpetual pressure points between policyholders and insurance companies. There was a mixture of good and bad news for both sides — some factspecific, some providing cues for future conduct and litigation strategy. Perhaps most noteworthy were decisions affirming the existence of a duty of good faith owed by insurance companies to policyholders, and of fiduciary duty for brokers. Policyholders should hold both their insurance companies and their brokers to high standards of service, while also maintaining vigilance on their own behalf.

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Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for June 2016.
Beginning of Construction for Sections 45 and 48. Notice 2016–31 updates prior IRS guidance to reflect the PATH Act extension and modification of the date by which facilities must begin construction. Notice 2016–31 also extends the date by which taxpayers must place a facility in service to satisfy the Continuity Safe Harbor.
These final regulations provide guidance on distributions from designated Roth accounts. The guidance removes a rule that had required a direct rollover to an eligible retirement account and a payment to the employee to each receive a proportionate share of the pretax and after-tax amounts in the account.
This document contains final regulations eliminating the requirement that each disbursement from a designated Roth account that is directly rolled over to an eligible retirement plan be treated as a separate distribution from any amount paid directly to the employee and therefore separately subject to the rule in section 72(e)(2) of the Internal Revenue Code (the Code) allocating pretax and after-tax amounts to each distribution. As a result of this change, if disbursements are made from a taxpayer’s designated Roth account to the taxpayer and also to the taxpayer’s Roth IRA or designated Roth account in a direct rollover, then pretax amounts will be allocated first to the direct rollover, rather than being allocated pro rata to each destination. Also, a taxpayer will be able to direct the allocation of pretax and after-tax amounts that are included in disbursements from a designated Roth account that are directly rolled over to multiple destinations, applying the same allocation rules to distributions from designated Roth accounts that apply to distributions from other types of accounts. These regulations affect participants in, beneficiaries of, employers maintaining, and administrators of designated Roth accounts under tax-favored retirement plans.
Effective Date: These regulations are effective on May 18, 2016.
Applicability Date: These regulations generally apply to distributions on or after January 1, 2016 (or an earlier date chosen by the taxpayer that is on or after September 18, 2014). For more information see the “Effective/Applicability Dates” section of this preamble.
Michael Brewer at (202) 317-6700 (not a toll-free number).
Section 402(a) provides generally that any amount distributed from a trust described in section 401(a) that is exempt from tax under section 501(a) is taxable to the distributee under section 72 in the taxable year of the distributee in which distributed. Under section 403(b)(1), any amount distributed from a section 403(b) plan is also taxable to the distributee under section 72.
Section 402(c) prescribes rules for amounts that are rolled over from qualified trusts to eligible retirement plans, including individual retirement accounts or annuities (“IRAs”). Subject to certain exceptions, section 402(c)(1) provides that if any portion of an eligible rollover distribution paid to an employee from a qualified trust is transferred to an eligible retirement plan, the portion of the distribution so transferred is not includible in gross income in the taxable year in which paid.
Under section 402(c)(2), the maximum portion of an eligible rollover distribution that may be rolled over in a transfer to which section 402(c)(1) applies generally cannot exceed the portion of the distribution that is otherwise includible in gross income. However, under section 402(c)(2)(A) and (B), the general rule does not apply to such a distribution to the extent that such portion is transferred in a direct trustee-to-trustee transfer to a qualified trust or to an annuity contract described in section 403(b) and such trust or contract provides for separate accounting for amounts so transferred (and earnings thereon), including separately accounting for the portion of such distribution which is includible in gross income and the portion of such distribution which is not so includible, or such portion is transferred to an IRA.
In addition, section 402(c)(2) provides that, in the case of a transfer described in subparagraph (A) or (B), the amount transferred shall be treated as consisting first of the portion of such distribution that is includible in gross income (determined without regard to section 402(c)(1)).
Under section 402A, an applicable retirement plan may include a designated Roth account. An applicable retirement plan is defined in section 402A(e)(1) to mean a plan qualified under section 401(a), a section 403(b) plan, and a governmental section 457(b) plan. Section 402A(d) provides that a qualified distribution (as defined in section 402A(d)(2)) from a designated Roth account is not includible in gross income.
Under section 402A(d)(4), section 72 is applied separately with respect to distributions and payments from a designated Roth account and other distributions and payments from the plan.
Section 1.402A–1, Q&A–5(a), of the Income Tax Regulations prescribes taxability rules for a distribution from a designated Roth account that is rolled over. Q&A–5(a) provides, in part, that “any amount paid in a direct rollover is treated as a separate distribution from any amount paid directly to the employee” (the “separate distribution rule”).
Proposed regulations limiting the applicability of the separate distribution rule of § 1.402A–1, Q&A–5(a), were published on September 19, 2014 (REG–105739–11, 79 FR 56310). The proposed regulations achieved this result by adding, after the separate distribution rule in paragraph A–5(a), the following sentence: “The preceding sentence does not apply to distributions made on or after January 1, 2015; in addition, a taxpayer may elect not to apply the preceding sentence to distributions made on or after an earlier date that is no earlier than September 18, 2014.” Thus, under the proposed regulations, an amount paid in a direct rollover is not required to be treated as a separate distribution from any amount paid directly to the employee.
The proposed regulations were issued in conjunction with Notice 2014–54 (2014–41 IRB 670 (October 6, 2014)), which specified that a taxpayer may direct after-tax and pretax amounts that are simultaneously disbursed to multiple destinations so as to allocate them to specific destinations. Under Notice 2014–54, a taxpayer may direct the allocation of after-tax and pretax amounts in connection with disbursements that are directly rolled over, as well as in connection with disbursements that are rolled over in 60-day rollovers.
No comments were received regarding the proposed regulations.
These regulations finalize the proposed regulations, with a 1-year delay of the applicability date (from January 1, 2015, to January 1, 2016). They are substantively the same as the proposed regulations, but express the rule differently to better reflect the ongoing rule and the transition rule. For distributions made on or after January 1, 2016, the final regulations remove the sentence in the existing regulations that provided the separate distribution rule. For earlier distributions, the final regulations add a sentence at the end of the paragraph which provides that a separate distribution rule applies to distributions made prior to January 1, 2016, unless a taxpayer elects not to apply that rule with respect to a distribution made on or after September 18, 2014.
These regulations apply to distributions from designated Roth accounts made on or after January 1, 2016, and for such distributions taxpayers are required to follow the allocation rules described in Notice 2014–54.
These regulations also preserve the separate distribution rule for distributions made prior to the January 1, 2016, applicability date, except that a taxpayer is permitted to choose not to apply the separate distribution rule to distributions that are made on or after September 18, 2014, and before January 1, 2016. Taxpayers choosing not to apply the separate distribution rule to distributions made during that transition period, must apply a reasonable interpretation of the last sentence of section 402(c)(2) (generally requiring that pretax amounts be treated as rolled over first) to allocate pretax and after-tax amounts among disbursements made to multiple destinations. For this purpose, a reasonable interpretation of the last sentence of section 402(c)(2) includes the rules described in Notice 2014–54.
Notice 2014–54 is published in the Internal Revenue Bulletin and is available from the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402, or by visiting the IRS website at http://www.irs.gov.
Certain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866, as supplemented and reaffirmed by Executive Order 13563. Therefore, a regulatory impact assessment is not required. It has also been determined that section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to these regulations, and because the regulation does not impose a collection of information on small entities, the Regulatory Flexibility Act (5 U.S.C. chapter 6) does not apply.
The principal author of these regulations is Michael Brewer, Office of the IRS Associate Chief Counsel (Tax Exempt and Government Entities). However, other personnel from the IRS and the Department of Treasury participated in the development of the regulations.
§ 1.402A–1 Designated Roth Accounts.
A–5. (a) * * * For distributions made prior to January 1, 2016, any amount paid in a direct rollover is treated as a separate distribution from any amount paid directly to the employee, except that taxpayers may choose not to apply this sentence to distributions made on or after September 18, 2014, and before January 1, 2016.
John M. Dalrymple Deputy Commissioner for Services and Enforcement.
This revenue ruling provides various prescribed rates for federal income tax purposes for June 2016 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(1) for buildings placed in service during the current month. However, under section 42(b)(2), the applicable percentage for non-federally subsidized new buildings placed in service after July 30, 2008, shall not be less than 9%. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.
Section 38 of the Internal Revenue Code (the Code) allows certain business credits against the tax imposed by Chapter 1 of the Code. Among the credits allowed by § 38 is the credit for renewable electricity production described in § 45(a). To qualify for the renewable electricity production tax credit, electricity must, among other things, be produced by the taxpayer at a qualified facility. Section 45(a)(2)(A). Section 45(d) defines qualified facilities for purposes of § 45.
Prior to the American Taxpayer Relief Act of 2012, Pub. L. No. 112–240, 126 Stat. 2313 (ATRA), § 45(d) required a facility to be placed in service before January 1, 2014, in order to be a qualified facility, except for qualified wind facilities which had to be placed in service before January 1, 2013. ATRA modified the definition of certain qualified facilities under § 45(d) by replacing the placed in service requirement with a beginning of construction requirement. ATRA provided that a taxpayer is eligible to receive the renewable electricity production tax credit (PTC) under § 45, or the energy investment tax credit (ITC) under § 48 in lieu of the PTC, with respect to certain renewable energy facilities if construction of such facility began before January 1, 2014. On December 19, 2014, the Tax Increase Prevention Act of 2014, Pub. L. No. 113–295, 128 Stat. 4021 (TIPA), extended by one year, to January 1, 2015, the date by which construction of a qualified facility must begin.
On December 18, 2015, the Protecting American from Tax Hikes Act of 2015, Pub. L. No. 114–113, Div. Q, 129 Stat. 2242 (the PATH Act), enacted amendments to the PTC and the ITC for certain renewable energy facilities. The PATH Act extended the PTC for two years with respect to certain facilities the construction of which begins before January 1, 2017, and further extended the PTC for wind facilities the construction of which begins before January 1, 2020. The PATH Act also modified the PTC for wind facilities by providing that the credit will phase out over the next four years. The PATH Act also extended the ITC for solar energy facilities the construction of which begins before January 1, 2022. The Treasury Department and the Internal Revenue Service (Service) anticipate issuing separate guidance addressing the extension of the ITC for solar energy facilities.
The Service will not issue private letter rulings to taxpayers regarding the application of this notice or the application of the beginning of construction requirement under §§ 45(d) and 48(a)(5) as provided in Notice 2013–29, 2013–1 C.B. 1085; Notice 2013–60, 2013–2 C.B. 431; Notice 2014–46, 2014–2 C.B. 520; and Notice 2015–25, 2015–13 I.R.B. 814 (collectively “the prior IRS notices”).
On May 13, 2013, the Treasury Department and the Service published Notice 2013–29, which provides two methods that a taxpayer may use to establish that construction of a qualified facility has begun. A taxpayer may establish the beginning of construction by beginning physical work of a significant nature as described in section 4 of Notice 2013–29 (Physical Work Test). Alternatively, a taxpayer may establish the beginning of construction by meeting the safe harbor provided in section 5 of Notice 2013–29 (Five Percent Safe Harbor). Both methods require that a taxpayer make continuous progress towards completion once construction has begun, as set forth in section 4.06 of Notice 2013–29 (Continuous Construction Test) for taxpayers using the Physical Work Test and section 5.02 of Notice 2013–29 (Continuous Efforts Test) for taxpayers using the Five Percent Safe Harbor (collectively, the Continuity Requirement).
On October 28, 2013, the Treasury Department and the Service published Notice 2013–60, which provides a safe harbor for satisfying the Continuity Requirement (the Continuity Safe Harbor). Under the Continuity Safe Harbor in section 3.02 of Notice 2013–60, if a facility was placed in service before January 1, 2016, the facility will be considered to satisfy the Continuity Requirement. Failure to satisfy the Continuity Safe Harbor does not mean that a facility has not satisfied the Continuity Requirement, however. If a facility was not placed in service before January 1, 2016, whether the facility satisfies the Continuity Requirement will be determined by the relevant facts and circumstances, as described in sections 4.06 and 5.02 of Notice 2013–29.
After the publication of Notice 2013–60, the Treasury Department and the Service received requests for further clarification regarding how to satisfy the Physical Work Test, as well as questions regarding the effect of various types of transfers with respect to a facility after construction has begun. On September 2, 2014, the Treasury Department and the Service published Notice 2014–46 to clarify the application of the Physical Work Test and the effect that certain transfers with respect to a facility after construction has begun will have on a taxpayer’s ability to qualify for the PTC or the ITC.
In response to a significant number of questions received after the extension of the PTC and the ITC by TIPA, on March 30, 2015, the Treasury Department and the Service published Notice 2015–25 to extend by one year the Continuity Safe Harbor provided in Notice 2013–60. Under the extended Continuity Safe Harbor in Notice 2015–25, if a taxpayer began construction on a facility prior to January 1, 2015, and places the facility in service before January 1, 2017, the facility will be considered to satisfy the Continuity Requirement, regardless of the amount of physical work performed or the amount of costs paid or incurred with respect to the facility after December 31, 2014, and before January 1, 2017.
Similarly, in response to a significant number of questions received after the extension of the PTC and the ITC by the PATH Act, this notice further extends and modifies the Continuity Safe Harbor and provides additional guidance regarding the application of the Continuity Safe Harbor and the Physical Work Test. This notice also clarifies the application of the Five Percent Safe Harbor to retrofitted renewable energy facilities. Except as otherwise specified in this notice, the guidance provided in the prior IRS notices continues to apply.
On December 18, 2015, the PATH Act extended the PTC for two years with respect to certain facilities the construction of which begins before January 1, 2017, and further extended the PTC for wind facilities the construction of which begins before January 1, 2020, with the PTC phasing out over the next four years. This notice modifies the Continuity Safe Harbor originally provided in section 3.02 of Notice 2013–60 and extended by section 3 of Notice 2015–25. Accordingly, if a taxpayer places a facility in service by the later of (1) a calendar year that is no more than four calendar years after the calendar year during which construction of the facility began or (2) December 31, 2016, the facility will be considered to satisfy the Continuity Safe Harbor. For example, if construction begins on a facility on January 15, 2016, and the facility is placed in service by December 31, 2020, the facility will be considered to satisfy the Continuity Safe Harbor.
.01 Combination of methods. A taxpayer may not rely upon the Physical Work Test and the Five Percent Safe Harbor in alternating calendar years to satisfy the beginning of construction requirement or the Continuity Requirement. For example, if a taxpayer performs physical work of a significant nature on a facility in 2015, and then pays or incurs five percent or more of the total cost of the facility in 2016, the Continuity Safe Harbor will be applied beginning in 2015, not in 2016.
.02 Disruptions to Continuous Construction or Continuous Efforts Tests.
(1) In general. Section 4.06(1) of Notice 2013–29 provides that whether a taxpayer satisfies the Continuity Requirement will be determined by the relevant facts and circumstances.
.01 In general. The Physical Work Test requires that a taxpayer begin physical work of a significant nature. As provided in section 3 of Notice 2014–46, this test focuses on the nature of the work performed, not the amount or the cost. Assuming the work performed is of a significant nature, there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy the Physical Work Test.
.02 Examples. The following list of examples is intended to illustrate physical work of a significant nature for different types of renewable energy facilities and is non-exclusive.
(1) Wind facilities. On-site physical work of a significant nature may include the excavation for the foundation, the setting of anchor bolts into the ground, or the pouring of the concrete pads of the foundation.
(2) Hydropower facilities. On-site physical work of a significant nature may include the excavation for or construction of a penstock, power house, or retaining wall structure.
(3) Biomass and trash facilities. On-site physical work of a significant nature may include the performance of site improvements (as opposed to site clearing), such as filling or compacting soil, or installing stack piling.
(4) Geothermal facilities. On-site physical work of a significant nature may include physical activities that are undertaken at a project site after a valid discovery.
(13) removing existing turbines and towers, solar panels, or any components that will no longer be part of the facility.
(1) In general. As provided in section 4.04 of Notice 2013–29, a facility (within the meaning of § 45(d)) generally includes all components of property that are functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of each of the other components in order to generate electricity.
(2) Single project. Solely for purposes of determining whether construction of a facility has begun for purposes of §§ 45 and 48, multiple facilities that are operated as part of a single project (along with any property, such as a computer control system, that serves some or all such facilities) will be treated as a single facility. Whether multiple facilities are operated as part of a single project will depend on the relevant facts and circumstances. The single project rule may be applied to facilities that rely upon either the Physical Work Test or the Five Percent Safe Harbor to satisfy the Continuity Requirement.
(3) Timing of single project determination. The determination of whether multiple facilities are operated as part of a single project and are therefore treated as a single facility for beginning of construction purposes under section 5.04(2) must be determined in the calendar year during which the last of the multiple facilities is placed in service.
(4) Disaggregation. Multiple facilities that are operated as part of a single project and treated as a single facility under section 5.04(2) for purposes of determining whether construction of a facility has begun may be disaggregated and treated as multiple separate facilities for purposes of determining whether a facility satisfies the Continuity Safe Harbor. Those disaggregated facilities that are placed in service prior to the Continuity Safe Harbor deadline will be eligible for the Continuity Safe Harbor. The remaining disaggregated facilities may satisfy the Continuity Requirement under a facts and circumstances determination. The disaggregation rule may be applied to facilities that rely upon either the Physical Work Test or the Five Percent Safe Harbor to satisfy the Continuity Requirement.
(a) Example. X is developing a wind farm that will consist of 50 turbines, associated towers and supporting pads, a computer system that monitors and controls the turbines, and associated power conditioning equipment. The entire wind farm will be connected to the power grid through a single intertie, and power generated by the wind farm will be sold to a local utility through a single power purchase agreement. Using the single project rule in section 5.04(2), the entire wind farm is a single project that will be treated as a single facility. On June 1, 2018, X excavates the site for the foundations of 10 of the 50 turbines and pours concrete for the supporting pads. Accordingly, X has performed physical work of a significant nature that constitutes the beginning of construction of the single facility for purposes of §§ 45 and 48.
Thereafter, X places in service only 40 of the 50 turbines and related facilities before January 1, 2023. X disaggregates the 50 turbines under section 5.04(4). Forty of the 50 turbines satisfy the Continuity Safe Harbor. For the remaining 10 turbines, X may demonstrate that it satisfies the Continuous Construction Test described in section 4.06 of Notice 2013–29 based on the facts and circumstances.
.01 In general. A facility may qualify as originally placed in service even though it contains some used property, provided the fair market value of the used property is not more than 20 percent of the facility’s total value (the cost of the new property plus the value of the used property) (80/20 Rule). See Rev. Rul. 94–31, 1994–1 C.B. 16; Notice 2008–60, 2008–2 C.B. 178. In the case of a single project comprised of multiple facilities (as described in section 5.04(2)), the 80/20 Rule is applied to each individual facility comprising the single project.
.02 Application of beginning of construction to retrofitted facilities. To satisfy beginning of construction for §§ 45 and 48, the Five Percent Safe Harbor is applied only with respect to the cost of new property used to retrofit an existing facility. Therefore, only expenditures paid or incurred that relate to new construction should be taken into account for purposes of the Five Percent Safe Harbor.
(1) Example. Taxpayer owns an existing wind farm comprised of 13 turbines, pads, and towers for which the eligibility periods for the PTC or the ITC have elapsed. Each facility has a fair market value of $1 million. Taxpayer replaces components worth $900,000 at each of 11 of the facilities at a cost of $1.4 million for each facility. Two of the 13 facilities are not upgraded. The fair market value of the remaining original components at each of the upgraded facilities is $100,000. The total expenditures to retrofit the 11 facilities are $15.4 million ($1.4 million x 11). Taxpayer applies the single project rule provided in section 5.04(2).
The fair market value of the remaining original components of each individual upgraded facility ($100,000) is not more than 20% of each facility’s total value of $1.5 million (the cost of the new components ($1.4 million) + the value of the remaining original components ($100,000)). Thus, each upgraded facility will be considered newly placed in service for purposes of §§ 45 and 48. Accordingly, if the taxpayer pays or incurs at least $770,000 (5% of $15.4 million) of qualified expenditures in 2016, construction of the single facility will be considered to have begun in 2016, and if the taxpayer also satisfies the Continuous Efforts Test, each of the 11 upgraded facilities will be a qualified facility within the meaning of § 45(d). No additional PTC will be allowed with respect to energy produced by the taxpayer at the two facilities that were not upgraded. Nor will those two facilities qualify for additional ITC.
Notice 2013–29, Notice 2013–60, Notice 2014–46, and Notice 2015–25 are clarified and modified. The guidance provided in this notice is applicable to any project for which a taxpayer claims the PTC or the ITC under §§ 45 or 48, as modified by ATRA, that is placed in service after January 2, 2013.
The principal author of this notice is Jennifer C. Bernardini of the Office of Associate Chief Counsel (Passthroughs & Special Industries). For further information regarding this notice contact Ms. Bernardini on (202) 317-6853 (not a toll-free number).
 As a result, facilities the construction of which begins before January 1, 2017, are eligible to receive 100% of the PTC; facilities the construction of which begins after December 31, 2016, and before January 1, 2018, are eligible to receive 80% of the PTC; facilities the construction of which begins after December 31, 2017, and before January 1, 2019, are eligible to receive 60% of the PTC; and facilities the construction of which begins after December 31, 2018, and before January 1, 2020, are eligible to receive 40% of the PTC.


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G.R. No. 159010 - NIPPON PAINT EMPLOYEES UNION-OLALIA v. COURT OF APPEALS, ET AL.
NIPPON PAINT EMPLOYEES UNION-OLALIA in behalf of ADONIS GUANSING, Petitioner, v. COURT OF APPEALS, NIPPON PAINT PHILS., INC. and HON. VOLUNTARY ARBITRATOR BERNARDINO M. VOLANTE, Respondents.
Before us is a Petition for Certiorari under Rule 45 of the Rules of Court to review the decision of the Court of Appeals in CA-G.R. SP No.76501 dated 25 April 2003.
Petitioner Nippon Paint Employees Union (NPEU) is a labor union duly organized under the laws of the Philippines. Respondent Nippon Paint Phils., Inc. (NPPI) is a corporation duly organized under the laws of the Philippines engaged in the manufacture and sale of car paint.
The undisputed facts are as follows.
Singaporean-owned Nippon Paint controls 65 percent of the architectural and car paint market nationwide.
Thus, the workers said, there was no reason for the company to claim in ongoing collective bargaining talks that the company was losing money.
"How is that possible when we supply 32 million liters of the 50 million liters of car paint used nationwide? We cover 65 percent of the total market demand," said Adonis Guansing, a chemist and auditor of the Nippon Paint Labor Union.
Guansing said that Nippon Paint could well afford to increase wages because the company made P600 million last year based on its declaration filed with the Securities and Exchange Commission.
"We had no problem like this when the Japanese controlled Nippon Paint. It was only in 1997 that the union began facing serious problems when the Singaporeans took over majority ownership of the company," Guansing said.
Management claimed the company lost P297 million and there is an unsold inventory of paint worth P202 million.
interests, either directly or indirectly.
After the submission of Mr. Guansing's reply and unsuccessful efforts by NPPI to organize a conference between them, the latter issued a memorandum on 16 May 2002 terminating the former's employment effective 20 May 2002.6 Thereafter, Mr. Guansing, represented by NPEU, filed a complaint for illegal dismissal with the National Labor Relations Commission. Both parties agreed to submit the dispute to voluntary arbitration. On 18 December 2002, Voluntary Arbitrator Bernardino Volante promulgated a decision in favor of NPPI declaring Mr. Guansing's dismissal as legally effected but awarding P40,000.00 to the latter in the name of "compassionate justice." NPEU, acting on behalf of Mr. Guansing, challenged the said decision in the Court of Appeals by filing a Rule 65 petition for certiorari on 14 April 2003.7 The Court of Appeals dismissed NPEU's petition in its decision dated 25 April 2003.8 Hence, the present petition for certiorari .
NPEU asks this Court to rule on an issue of law - whether the Court of Appeals properly dismissed its petition for certiorari under Rule 65 for being an improper mode of appeal. It is the view of the Court of Appeals that NPEU should have appealed the voluntary arbitrator's decision by Petition for Review under Rule 43 instead of Rule 65.
This salutary rule has been disregarded on occasion by this Court in instances where valid and compelling circumstances warrant.18 However, NPEU has not provided this Court any compelling reason why it must disregard the mandate of the Rules of Court.
IN VIEW WHEREOF, the decision of the Court of Appeals dated 25 April 2003 is hereby AFFIRMED and the instant Petition DISMISSED.
9 249 SCRA 162 (1995).
10 B.P. Blg 129, Section 9(3) (1980) as amended by Republic Act No. 7902.
11 1997 Rules of Civil Procedure, Rule 43, Section 1 (1997).
12 Sebastian v. Morales, 397 SCRA 549 (2003); 1997 Rules of Civil Procedure, Rule 56, Section 5(f).
13 Republic v. Court of Appeals, 322 SCRA 81 (2000) citing Bernardo v. Court of Appeals, 275 SCRA 413 (1997).
14 1997 Rules of Civil Procedure, Rule 65, Section 1; Republic v. Court of Appeals, 322 SCRA 81 (2000); Bernardo v. Court of Appeals, 275 SCRA 413 (1997).
15 Republic v. Court of Appeals, 322 SCRA 81 (2000).
18 Estate of Salud Jimenez v. Philippine Export Processing Zone, 349 SCRA 240 (2001); Santo Tomas University Hospital v. Surla, 294 SCRA 382 (1998).

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81 F.3d 1041 (11th Cir. 1996), 94-5045, McMillian v. F.D.I.C.
Party Name: Samuel M. McMILLIAN, Jr., Plaintiff-Appellant, v. FEDERAL DEPOSIT INSURANCE CORPORATION, as receiver of Southeast Bank, N.A. and as de facto ERISA fiduciary of the Southeast Bank, N.A. Reduction in Force Severance Pay Plan, Defendant-Appellee.
fiduciary of the Southeast Bank, N.A.
Harry D. Lewis, Miami, FL, for Appellant.
Edward J. O'Meara, Daniel H. Kurtenbach, Maria Beatrice Valdez, F.D.I.C., Washington, DC, for Appellee.
Before TJOFLAT, Chief Judge, and KRAVITCH and ANDERSON, Circuit Judges.
Samuel M. McMillian, Jr., appeals the district court's dismissal of his action for severance pay against the FDIC as receiver of a failed bank. The district court dismissed McMillian's Worker Adjustment and Retraining Notification ("WARN") Act claim for lack of jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). We affirm the district court's disposition of the WARN Act claim. With respect to McMillian's Financial Institutions Reform, Recovery, and Enforcement Act ("FIRREA") claim, the district court dismissed the complaint pursuant to Fed.R.Civ.P. 12(b)(6). This appeal raises two FIRREA issues: (1) whether FIRREA bars the enforcement of severance pay agreements because they are "contingent"; and (2) whether severance payments constitute "actual direct compensatory damages" under FIRREA. The district court held that McMillian's claim is barred because his right to receive severance pay was contingent when the FDIC was appointed receiver. We reverse.
to receive from [Southeast] a Severance Payment in the amount provided in Section 4.2 and the other Severance Benefits provided in Section 4.4.
(Southeast Banking Corporation Reduction in Force Severance Pay Plan § 4.1). Under Section 4.2, participants who had been employed by Southeast for more than two years were entitled to one week of severance pay per year of employment. 1 The Severance Plan defines "Reduction in Force" as "the involuntary termination of employment of a Participant because of the elimination of such Participant's position with [Southeast or its parent] due to economic or business conditions, reorganizations of the Company which combine or limit positions or for other reasons."
On September 19, 1991, the Office of the Comptroller of the Currency declared Southeast insolvent and appointed the FDIC receiver under 12 U.S.C.A. § 1821(c). Within two days thereafter, the FDIC terminated McMillian's employment and granted him two weeks of severance pay. There is no dispute that McMillian was terminated as a result of a "reduction in force."
Claiming that he was entitled to nineteen weeks of severance pay based on his nineteen years with the bank, McMillian filed a claim for benefits under the Severance Plan with the FDIC. The FDIC disallowed the claim 2 and McMillian filed suit in the United States District Court challenging the FDIC's action. In his complaint, McMillian alleged a claim under the WARN Act, 29 U.S.C.A. § 2101 et seq., and a claim for damages under FIRREA, 12 U.S.C.A. § 1821(e).
The magistrate judge submitted a Report and Recommendation granting the FDIC's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and 12(b)(6). The magistrate judge recommended dismissal on the grounds that: 1) the district court lacked subject matter jurisdiction over McMillian's WARN Act claim; and 2) McMillian's severance pay claim was "contingent" as of the appointment of the FDIC as receiver and, therefore, not cognizable under FIRREA, 12 U.S.C.A. § 1821(e)(3)(A)(ii)(I).
With respect to the severance pay claim under FIRREA, the magistrate judge based his conclusion almost entirely on two cases: American Nat'l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983), and Office & Professional Employees Int'l Union v. FDIC, 813 F.Supp. 39, 45 (D.D.C.1993). From these cases, he reasoned that the rights and liabilities of Southeast and its creditors were fixed at the declaration of insolvency. Those claims which had not accrued as of the appointment of the receiver, the magistrate judge concluded, are not cognizable under FIRREA. Because McMillian's claim for benefits under the Severance Plan was found to be contingent--i.e., it did not accrue until his termination due to a Reduction in Force--it was not fixed as of the appointment of the FDIC and therefore failed.
After the magistrate judge submitted his Report and Recommendation, but before the district court entered its order, the D.C. Circuit reversed the district court in Office & Professional Employees Int'l Union. Office & Professional Employees Int'l Union v. FDIC, 27 F.3d 598 (D.C.Cir.1994) ("OPEIU "). The district court nonetheless adopted the magistrate judge's recommendations based on what it considered the binding precedent of American Nat'l Bank, supra, and Bayshore Executive Plaza Partnership v. FDIC, 750 F.Supp. 507 (S.D.Fla.1990), aff'd on other grounds, 943 F.2d 1290 (11th Cir.1991).
McMillian challenges the district court's dismissal of his WARN Act claim for lack of jurisdiction. He essentially argues that the Severance Plan was drafted to "operate in tandem" with the WARN Act, and thus incorporated it by reference.
We review questions of subject matter jurisdiction de novo. Tamiami Partners, Ltd. v. Miccosukee Tribe of Indians, 999 F.2d 503, 506 (11th Cir.1993). The rule in this circuit is clear: "FIRREA makes exhaustion of the FDIC's administrative complaint review process mandatory when the FDIC has been appointed receiver for a financial institution." Motorcity of Jacksonville, Ltd. v. Southeast Bank, 39 F.3d 292, 296 (11th Cir.1994), vacated, 58 F.3d 589 (11th Cir.1995).
In this case, McMillian has sued the FDIC in its capacity as receiver of Southeast; however, he did not file a WARN Act claim, either implicitly or explicitly, with the FDIC before bringing this action. Accordingly, we hold that the district court did not have jurisdiction of McMillian's WARN Act claim because he failed to exhaust his administrative remedies as required by FIRREA.
Under FIRREA, the FDIC has the power to repudiate any contract to which it is a party, that it determines to be burdensome, and the repudiation of which will promote the orderly administration of the institution's affairs. 12 U.S.C.A. § 1821(e)(1). The election to repudiate a contract must be made within a reasonable time following the appointment of the receiver. 12 U.S.C.A. § 1821(e)(2).
This case squarely confronts the meaning of these sections. The FDIC presses two grounds of support for the district court's dismissal of the case: (1) the severance payments were contingent at the time FDIC was appointed receiver because McMillian's employment had not yet been terminated--thus, McMillian's claim was not provable under the pre-FIRREA common law; 3 and (2) the relief for which McMillian prays does not constitute "actual direct compensatory damages" as contemplated by FIRREA. We examine these arguments in turn.
The FDIC strenuously argues that contingent contract rights do not form a basis for recovery under FIRREA. This Court has stated that "[i]t is well settled that the rights and liabilities of a bank and the bank's debtors and creditors are fixed at the declaration of the bank's insolvency." American Nat'l Bank v. FDIC, 710 F.2d 1528, 1540 (11th Cir.1983) (citing First Empire Bank v. FDIC, 572 F.2d 1361, 1367-68 (9th Cir.), cert.


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Physics Department, University of Maryland, College Park, USA.
1Research Institute of Physics, Southern Federal University, Rostov-on-Don, Russia, 2Institute for Nuclear Research of the Russian Academy of Sciences, Moscow, Russia.
We discuss a special class of quantum gravity phenomena that occur on the scale of the Universe as a whole at any stage of its evolution, including the contemporary Universe. These phenomena are a direct consequence of the zero rest mass of gravitons, conformal non-invariance of the graviton field, and one-loop finiteness of quantum gravity, i.e. it is a direct consequence of first principles only. The effects are due to graviton-ghost condensates arising from the interfereence of quantum coherent states. Each of coherent states is a state of gravitons and ghosts of a wavelength of the order of the horizon scale and of different occupation numbers. The state vector of the Universe is a coherent superposition of vectors of different occupation numbers. One-loop approximation of quantum gravity is believed to be applicable to the contemporary Universe because of its remoteness from the Planck epoch. To substantiate the reliability of macroscopic quantum effects, the formalism of one-loop quantum gravity is discussed in detail. The theory is constructed as follows: Faddeev-Popov path integral in Hamilton gauge → factorization of classical and quantum variables, allowing the existence of a self-consistent system of equations for gravitons, ghosts and macroscopic geometry → transition to the one-loop approximation, taking into account that contributions of ghost fields to observables cannot be eliminated in any way. The ghost sector corresponding to the Hamilton gauge automatically ensures of one-loop finiteness of the theory off the mass shell. The Bogolyubov-Born-Green-Kirckwood-Yvon (BBGKY) chain for the spectral function of gravitons renormalized by ghosts is used to build a self-consistent theory of gravitons in the isotropic Universe. It is the first use of this technique in quantum gravity calculations. We found three exact solutions of the equations, consisting of BBGKY chain and macroscopic Einstein’s equations. It was found that these solutions describe virtual graviton and ghost condensates as well as condensates of instanton fluctuations. All exact solutions, originally found by the BBGKY formalism, are reproduced at the level of exact solutions for field operators and state vectors. It was found that exact solutions correspond to various condensates with different graviton-ghost compositions. Each exact solution corresponds to a certain phase state of graviton-ghost substratum. We establish conditions under which a continuous quantum-gravity phase transitions occur between different phases of the graviton-ghost condensate.
L. Marochnik, D. Usikov and G. Vereshkov, "Macroscopic Effect of Quantum Gravity: Graviton, Ghost and Instanton Condensation on Horizon Scale of Universe," Journal of Modern Physics, Vol. 4 No. 8, 2013, pp. 48-101. doi: 10.4236/jmp.2013.48A007.
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