Source: https://www.chmelik.com/category/articles/
Timestamp: 2019-04-26 00:17:20+00:00

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We have all heard accounts of a hacker breaking into a computer system and stealing data or locking out the system until a ransom is paid to regain access. This month, we will focus on what actions ports must take if there is an attack on the port’s computer system that could result in a release of “personal information”. We will also look at other prudent actions a port may consider to avoid or mitigate a cyber-attack.
(c) Full account number, credit or debit card number, or any required security code, access code, or password that would permit access to an individual’s financial account.
Ports may hold a variety of “personal information” in employee files, automated payroll deposit files, customer information files and automated customer payment information. Moreover, this information can be held on a variety of port servers.
The toll-free telephone numbers and addresses of the four major credit reporting agencies if the breach exposed personal information. Each bureau is required to contact the other three if an individual requests a fraud alert.
If the breach effects more than 500 people a sample copy of the notice must be submitted to the Washington Attorney General.
Insurance. Many insurance policies now cover losses from cyber-attacks. These may include the cost to restore data, the notification costs and even credit protection for a period of time for people who have had their personal data compromised. Check your port’s insurance policies and see if your port already has this coverage. If not, your port may want to investigate the cost of adding this coverage.
Cyber Hardening. Cyber hardening usually occurs after the attack. Your port may want to consider a cyber audit now to see how the port’s system could be strengthened. For example, it is possible to “encrypt” personal information. RCW 42.56.590 provides that a breach of encrypted data is not a release unless the hacker also gets the encryption keys or passwords.
Cyber Recovery. Some hackers merely lockup the computer system and then demand a ransom. Is your port prepared with backup data and hardware so that it can avoid paying these ransom demands and get back up and running in short order? Ports may want to consider identifying the cyber-attack expert now that they will call if there is an attack.
Data Control. Ports routinely collect information on tenants. It may be worthwhile to review what personal information your port is collecting and whether or not your port actually needs that data. For example, if your port is collecting social security numbers for all its marina customers, you may want to ask why.
Social Security Information. If social security information is disclosed, it is important to move quickly. The IRS can be contacted at http://www.irs.gov/uac/Identity-Protection. One can also call 1-800-908-4490. This will prevent tax-fraud thieves from filing fraudulent tax returns and collecting refunds.
Port Employees. The RCW 42.56.590 notification is the minimum that is required by the law. However, if your port system is hacker and employee personal information is stolen you may want to consider an all employee meeting to explain all the appropriate steps, including the report to a credit bureau.
Police Reports. In the past, a police report was a prerequisite to insurance claims. However, some insurance policies no longer require a police report to trigger coverage. Frankly, a local police department or sheriff’s department is probably unable to offer much help. Nevertheless, ports are public agencies that should operate with some amount of transparency.
This month, we take a bit of a technical dive into the issue of public works contracting and a fall 2018 decision of the Washington Supreme Court in Nova Contracting, Inc. v. City of Olympia. This is a “good news case” for port districts and other governments that issue public works contracts. Credit to Gerry O’Keefe at the WPPA for suggesting this topic.
First, a bit of the public works contracting process. Municipal governments, including port districts, hire contractors to perform public works construction projects. The public works contracts typically specify a process and timeline for the contractor to provide “notice” to the municipal government in advance of any claim for increased costs resulting from changes to the work, time delays, mistakes or omissions in the plans or unanticipated site conditions. The public works contracts also typically require the contractor file a timely “protest” to a municipal government’s decision on the contract’s claim thereby reserving the resolution for a later time.
Let’s take an example. A port district issues a public works contract for a new $1 million warehouse building to be built in six months. One month in, the port district issues a change order to upgrade the warehouse door with a statement that the port district prices the change at $10,000 and no additional time. The contractor says nothing and installs the upgraded door. After the door is installed, the contractor provides “notice” that the door actual costs $50,000, and ordering and installing the upgraded door actually added one month to the project. The port district denies the increase to $50,000 and the increased time. The contractor says nothing. Two months later, the project is finished. Now the contractor files a claim for $40,000 and another $20,000 because the project took an additional month to complete. I am describing a situation where the contractor missed both the “notice” deadline and the “protest” deadline.
Under a Washington Supreme Court case from 2003 – Mike M. Johnson, Inc. v. County of Spokane, the contractor loses because it had to strictly comply with the notice and protest provisions in order to make a claim – in our example, the contractor did not file a timely claim and did not protest the port’s decision. The reasoning behind this 2003 decision is sound. The port district must be told in advance of the increased costs or increased time claim so that the port district has the opportunity to decide in advance if it really wants the upgraded door. Once it decides that it wants the door and will only pay $10,000, the port district must be told in advance that the contractor is protesting the decision so again it can decide if it wants the door, knowing that the issue of cost and time is open for further resolution. If the contractor waits until the project is complete to raise the issue, there is nothing the port district could do to avoid the increased cost or time or the fight. Unfortunately, since 2003, a number of courts have declined to apply this standard citing the harsh result that can befall a contractor that failed to strictly comply with the “notice and protest provisions”. Returning to our example, if the door really did cost $50,000 and really did extend the project by one month, the contract would be out the increased dollars because it did not strictly follow the “notice and protest” procedures, and the port district would get a $50,000 door for $10,000 – that is a harsh result for the contractor.
Well along comes the City of Olympia which, in 2013, lets a contract to Nova Contracting, Inc. to replace a deteriorating cement culvert along Woodland Creek in Olympia. Problems ensue with the project from the beginning, and Nova complains to the City that many details were missing from the plans, and that it would need more money and more time to complete the project. The City denied the claim for more money and more time and eventually terminates Nova from the project. Nova did not “protest” the City’s decisions in the time and manner provided in the contract. Nova sued for damages. The trial court dismissed Nova’s claim. Division III of the Court of Appeals found for Nova noting that the City may have violated the inherent contractual duty of “good faith and fair dealing”, sending the matter back to the trial court for a trial. The City appealed to the Washington Supreme Court, and last fall in Nova Contracting, Inc. v. City of Olympia, in a unanimous decision, the supreme court dismissed all of Nova’s claims and reiterated that “Mike M. Johnson’s rule of strict compliance” is the law – a “good news” decision for municipal governments.
The take-aways here are important for port districts to avoid unanticipated expense in public works projects.
Check your public works contracts to make sure the “notice and protest” provisions are clear. Many municipal governments use the “notice and protest” provisions in the WASDOT book entitled Standard Specifications for Road, Bridge and Municipal Construction.
Understand, these “notice and protest” provisions must be strictly applied by both the port and the contractor. In this regard, follow the “notice and protest” provisions all the time and every time. Never tell a contractor “that’s ok, do the work now, don’t bother with the paperwork, we will figure it out later”. Such statements are invitations to future litigation.
To be fair, it may occasionally be appropriate to waive these provisions, but do so carefully and in a written agreement with the contractor.
 150 Wn. 2d 375 (2003).
Gift Baskets and Other Gifts. This time of year, port consultants like to deliver baskets of fruit, wine and cheese to their valued customers. Port employees and port commissioners can only accept “nominal gifts”, which are usually held to be less than $25, although your port district should have a policy on this. As to that basket, you can return it, you could donate it to a local charity for an auction, provide it as a door prize at an employee meeting or put it into the employee lunchroom for all to enjoy. The wine then needs to be returned, donated or given out as a door prize at an employee meeting. I might add that this same rule applies throughout the year for tickets to concerts or sporting events. One has to only imagine how attending a sporting event or receiving an expensive holiday gift from a port consultant would be explained in an open public meeting to understand the general rule.
Port Holiday Parties. Holiday parties can be a fun and productive way to bring employees together. However, port districts cannot pay for the holiday party. Some ports have “employee committees” that raise money to pay for events like a summer picnic or a holiday party. Ports can host “‘employee recognition events” or “all employee luncheons” to provide recognition to employees or groups of employees. At these events, the port can pay for the costs of the employee’s meals (but no alcohol).
Port Gifts to Employees. Ports can provide “nominal” (state law term) or “de minimis” (federal law term) gifts to employees for longevity or a particular accomplishment. A port logo hat, a port logo jacket or a plaque are considered “nominal”. The IRS rules (found in IRS Publication 15-B) note that gifts of cash or gift cards are never “de minimis” and therefore subject to tax.
Gift Exchanges. Sometimes port employees exchange holiday gifts. There are a couple of things to keep in mind here. First, any gift exchange should be voluntary and organized by employees and not as an official port event. Second, supervisors should not accept gifts from subordinate employees other than as part of a random gift exchange where names are drawn. Third, ports should ensure that any gifts are of nominal value and are of good taste. Fourth, remember that some holiday traditions do not resonate with all port employees’ backgrounds and religious beliefs – better a “holiday gift exchange” as opposed to a “secret Santa”. Remember, it is the port’s workplace, and the port retains a duty to its employees for that workplace. Here, a port policy goes a long way to clarifying these issues.
Holiday Events. By now you all are thinking “great – more prohibitions from the lawyers – bah humbug.” Point well taken. Over the years, I have seen many creative events organized by ports and port employees such as holiday concerts, food drives, ginger bread house competitions and senior port staff and commissioners cooking a holiday season breakfast for the port employees. So long as the value is “nominal” and participation is voluntary, holiday events can be a fun part of the season.
Holiday season activities, like most aspects of public employment, must be viewed from the perspective of the public, the perspective of other employees and preservation of the reputation of the port district in the community. In my experience it is rarely about a public employee looking for a benefit; rather, it is usually about a failure to fully consider how something could be perceived by other employees or the public.
From all of the staff and attorneys at our firm, we wish all of you a very happy holiday season.
A new case from the United States Ninth Circuit Court of Appeals may impact how the ports address the problem of homeless people and port property. To be clear, homelessness is a national, state and local problem that deserves compassion and attention. With that understood, several ports have inquired about the impact of United States Ninth Circuit Court of Appeals case, Martin v. City of Boise, No. 15-35845, decided on September 4, 2018 (the Ninth Circuit is the federal appellate court that includes Washington State). I suspect that some ports have heard about this case from the local city governments where the impact is being carefully evaluated. Now some ports are considering the effect on port parks, marinas, airport terminals and other places of public accommodation.
Martin v. City of Boise involved a lawsuit brought by several homeless individuals challenging their criminal convictions based upon the constitutionality of two City of Boise criminal ordinances. The ordinances in question were broadly worded to criminalize both the use of “any of the streets, sidewalks, parks, or public places as a camping place at any time” (defining “camping” broadly) and banning “sleeping” in any public place. The court ultimately found the Boise ordinances to be in violation of the Eighth Amendment of the United States Constitution holding that “so long as there is a greater number of homeless individuals in [a jurisdiction] than the number of available beds [in shelters],” the jurisdiction cannot prosecute homeless individuals for “involuntarily sitting, lying, and sleeping in public.” The Court clarified that as long as there is no option of sleeping indoors, the government cannot criminalize indigent homeless people for sleeping outdoors on public property based upon the false premise they had a choice in the matter.
This seems like a growing issue for ports, and based upon the Martin case, ports ought to consider their positions with regard to homeless people camping or sleeping in their parks, marinas, airport terminals and other places of public accommodation. I know ports have worked with other local governments to help be part of solutions, but these ports are also concerned about the real impact on their facilities and their customers. Typically, if someone were violating port rules on port property, the police would be called, and the person would be asked to leave or be charged with criminal trespassing. Now, local policing jurisdictions may be reluctant to issue citations in the face of the Martin case. Here are some actions that I think ports may want to take.
The port commission ought to be clear as to which port property and facilities are open to the public. Like any landowner, public or private, the port has the right to preclude public access to its property. Property not open to the public should be posted with appropriate signage and fences, where possible.
The Port Commission ought to establish clear rules for port property open to the public. These rules must apply to all the public. These rules can relate to “time, place and manner” of use, must be applied to all of the public, and must be reasonably related to an interest of the Port. Stated another way, these rules cannot be designed to exclude homeless people. These rules should be posted and uniformly applied. For example, if the Port prohibits overnight use of its park, it should be cautious about granting exceptions for certain events.
The Port commission ought to make clear in its delegation of powers resolution (RCW 53.08.245) that the “executive director and or his designees” has the authority to ask people to leave port property and declare them trespassers for port property not generally open to the public.
Port staff ought to have discussions with the local law enforcement leaders (sheriff and police chiefs) and their lawyers now about their stance on issuing trespass citations. Better to discuss these issues now rather than when the police officer or sheriff deputy has to be called to the marina park.
Your port may not now have problems with unwelcome impacts from our homeless population, but some thought and planning now will help prevent future problems.
This month’s focus is the on ports’ liability for injuries to tenants’ employees and others on port property. One can see a trend in Washington court decisions which will bear upon port districts’ liability.
A provision noting that the tenant has fully inspected the leasehold and takes the leasehold “as is” and “where is” without any further maintenance obligation of the port. If there are defects that would not be readily apparent on inspection but are known to the port, they should be noted in the lease. If the port does agree to undertake maintenance on the leasehold, the provision creating that obligation should be carefully drafted and provide for some mechanism of inspection by the port or reporting by the tenant to trigger the maintenance obligation.
A provision preserving the tenant’s responsibility for injuries on the leasehold where the lease calls for “preferential use” or “shared use”. These types of situations occur when several tenants share exclusive use of a facility at different times such as a marine railway or a ship berth. A “preferential use” or “shared use” is distinct from a “common area” that is open to all tenants at the same time (a common parking lot).
A provision providing that the tenant “defend and indemnify” the port for injuries occurring on the leasehold or port property arising from the tenant’s activities. The reference to “on port property arising from tenant activities” is especially important where there are rights in the lease to use common areas such as a parking lot or common space in an office complex.
A provision requiring the tenant to obtain and maintain liability insurance endorsing the port as an additional insured. I say “endorsing” because insurance companies sometimes challenge a certificate of additional insurance issued without the insurance companies’ concurrence. The “defend and indemnify” provision combined with the insurance provision means that the tenant’s insurance company will appoint a lawyer to defend the port and will pay any amount reached in settlement or awarded at trial.
A provision providing for a limited waiver of the tenant’s protection under the Washington Workers Compensation Act (Title 51 RCW). One should consider the fact that we live in a “pure comparative fault” state. This means that a jury must allocate by percentage the fault for an accident amongst all negligent parties. Now let’s assume an employee tripped and fell on a dock adjacent to the leasehold. Assume the port was 20% at fault because it did not warn of the trip hazard on the dock, the worker was 30% at fault because she did not watch where she was going, and the tenant (her employer) was is 50% at fault because it did not provide adequate safety gear or any safety training. In Washington, the worker can sue the port but not the employer, and the port would be liable for 70% (its share plus the employer’s share). This may seem unfair, but it is the law. Fortunately, tenants can and routinely will agree to “waive” or give up the protection from lawsuits involving injuries to their workers. This allows the port to bring the tenant into the lawsuit so that the court can consider the actions or negligence of the tenant.
Understand that the Port is Liable for Common Area Injuries. Ports, like all landowners, are liable for injuries that occur on property open to the public or groups of tenants – so called “common areas”. Simply stated, the duty is “inspect, warn or make safe”. There are exceptions like the Recreational Use Statue, but the port should have a procedure to routinely inspect and either warn of a danger or make it safe.
Do Not Retain Too Much Control Over Tenant or Contractor Worksite Safety – the Multiparty Worksite Safety Rule. In Washington, employers have responsibility for the workplace safety of their own employees. However, in Washington, where there are multiple employers operating in the same space (such as a construction site with a general contractor and multiple subcontractors), the entity that controls the worksite is responsible for the safety of everyone (not just its employees) on the multiparty site. This common-sense rule recognizes that as a practical matter, as all the subcontractors are moving in an out of a site, it is only the general contractor that can look after overall safety. The “multiparty worksite safety rule” has been extend to other situations where the ability to control safety has been retained by a landlord or an owner if the retained control is direct and sufficient (examples include the right to stop a tenant or contractor from operating if the port sees a safety issue or the requirement that all tenant or contractor employees attend a port safety class and get a port permit to operate on the site). The better practice is to require the tenant in the lease or the contractor in the construction contract to comply with all applicable regulations, including those related to safety. The violation of those regulations would then be a breach of the lease or contract.
This month, we will take a quick walk through the ports’ liability for personal injury or property damage on port property. The issues surrounding liability come up from time to time and touch all aspects of port operations. There are several steps that prudent port districts should take now to minimize the cost and disruption from claims later.
Understand the Port’s risk. Washington law (unlike most states) looks at the reason the person is on port property and applies a different standard to each reason. Here is a basic outline.
Common and Public Areas. The Port retains primary liability for these areas (which include areas in the port offices where the public is allowed to enter). The people on the property are “business invitees”. Common areas include parts of the port offices where non-port employees are allowed to visit; boat launches, docks, floats, lobbies in port buildings, airport terminals and parking lots. The port owes a duty to “inspect, warn or make safe” its property for business invitees. Therefore, port property should be inspected regularly, and warn or make safe any defects.
Leased Areas. When a port leases property to a tenant and the tenant is aware of the condition of the leased property, the liability for injury is generally passed from the port to the tenant with the tenant then bearing responsibility for its “business invitees” and its employees. Therefore, the best practice is to specify in the lease that the tenant has fully inspected the leasehold before the lease is signed, specifically warn a tenant of all known defects that may cause harm and be very careful about retaining any duty to inspect or maintain the leasehold.
Recreational Use Areas. Washington law (RCW 4.24.210) provides that when a port allows members of the public to use their lands for the purposes of outdoor recreation without charging a fee of any kind are recreational users. The port is not liable for unintentional injuries to such users except if the injury came from a known man-made dangerous condition that was not readily apparent, and no warning signs were posted. Recreational areas are beaches and parks.
Purchase appropriate insurance. These days, the size of personal injury claims and the size of property damage claims are growing. It makes sense to revisit the amount of insurance the port purchases with the port’s insurance broker. Also, seek out information from other ports. It seems ports are buying much more insurance these days.
lease and use agreement language excluding port liability for damage to tenant’s property, damage to boats in the marina from things like stray current and other damage to property. The idea here is that tenants and other users buy insurance that should respond to property damage.
lease language that explicitly states the port has no duty to maintain or repair.
Develop a program of inspection, reporting and response to complaints for common areas and recreational areas. The “best practice” is to have a system of periodic inspections, an adequate reporting system and a method to promptly address unsafe conditions either thorough signage or repair.
Provide adequate signage in common areas and recreational areas. Consider signs that designate recreational use areas. Where there is a reoccurring chance of injury or property damage, consider a warning sign.
Train port employees on an incident reporting system. Incidents (property damage, slip and falls and other injuries) will occur. Port staff should have access to and training in completing an incident reporting form with pictures documenting what happened. Typically, claims can come in several years after the incident. It is nice to have records.
Develop a program to pay small claims. Experience shows that paying for torn clothing, minor injuries or other minor property damage can avoid more expensive litigation and spending deductibles. Care should be taken to require a release in exchange for the payment. This program should be run by the port’s insurance adjuster.
To be clear, property damage and personal injuries are relatively rare. But when significant losses do occur, the very first thing everyone does is scramble to review the agreements. Whether that is followed by object panic or a sigh of relief depends on what the port has done ahead of time.
Several items of interest to port commissioners have arisen over the past few months. They are not related but taken together provide some (I hope) useful information.
The Port Commission Appoints Three Positions. The port commission appoints the executive director, the port auditor and the port attorney. These three appointees report directly to the port commission and serve at the pleasure of the port commission. The port commission must rely on these folks to provide honest and accurate reports and opinions.
Executive Director. The port commission appoints the executive director (at some ports a “manager”) who is delegated authority, pursuant to RCW 53.12.270, as the “managing official” to act on behalf of the port commission to undertake “such administerial powers and duties of the commission as it may deem proper for the efficient and proper management of port district operations.” This delegation must be described in a resolution adopted by the port commission and the resolution must “establish guidelines and procedures for the managing official to follow.” It is from this language in RCW 53.12.270 that the term “Delegation of Powers Resolution” was coined.
Port Auditor. The port auditor is appointed by the port commission. Pursuant to RCW 53.36.010 the auditor signs warrants (checks) “upon vouchers approved by the commission”. Moreover, RCW 42.24.080 requires that prior to making a payment to anyone “furnishing materials, rendering services or performing labor, or for any other contractual purpose” to the port, the claim for payment must be “audited, before payment, by an auditing officer elected or appointed.” Therefore, the port commission must appoint an auditor. Practically speaking the auditor is also the port’s director of finance or chief financial officer. It is understood that the auditor/CFO both works for the executive director and reports directly to the commission on audit issues.
Port Attorney. The port attorney provides legal advice to the port and represents the port in litigation. Most of the actual work is done with the executive director and staff, but it is important that the port commission make the actual appointment and that there is a clear understanding that the port attorney represents the port and ultimately reports directly to the port commission.
The Port’s Insurance Company Will Likely Provide a Defense and Indemnification. The defense under RCW 53.08.280 should not be confused with the duty a port insurance carrier likely owes to each commissioner (and port employee) to provide a defense and pay any settlement or judgement because most commercial general liability insurance policies issued to ports define the “insured” to be the port, its commissioners, officers and employees. Generally, the insurance company duty to defend is broader then the RCW 53.08.280 duty. Moreover, most ports have also purchased “directors and officers” liability insurance which specifically covers lawsuits against port commissioners for actions in the course of their duties. The insurance is triggered by a letter enclosing the claim. Don’t be surprised if the first letter back from the insurance company seeks to defend under a “reservation of rights” or “denies” coverage. Lawyers are not surprised either and usually follow up with additional information that results in coverage.
Every now and again, someone wants to make a gift to a port district. This month’s column will focus on the ability and the process for port districts to receive gifts and donations (the terms “gift” and “donation” are used interchangeably) and the deductibility of those gifts. This issue comes up in several varieties. First, people sometimes want to “gift” items to a port and hope to receive a tax deduction for their gift. Second, in some instances people hope to claim as a “gift” the difference between what the port pays for an item and the item’s fair market value.
RCW 53.08.110 provides the statutory authority for port districts to receive gifts of “real and personal property,” but the statute provides that only the “port commissioners” are authorized to accept gifts. So, unless that authority has been delegated, accepting a gift will take commission action.
Now for the donor side. In most instances, those making the gift want to get the benefit of a federal tax deduction. The IRS allows a taxpayer to deduct a gift to a government, including port districts. In “IRS speak”, governments, including port districts, are a “qualified organization” because they are political subdivisions of the State. Unlike charitable organizations, a government does not need to apply to the IRS for a determination that it is a “qualified organization.” Look at IRS Publication 526 for more information on this point. The only limitation on the deductibility of a gift to a government (including ports) is that the gift must be used to “support a substantial government function.” Even out-of-pocket expenses of a volunteer can be deducted, but the value of the volunteer’s time cannot be deducted. Let’s look at some examples.
A person wants to donate a boathouse to a port, and the port will use the boathouse to house the port’s workboat. The value of this donation would be deductible.
A person wants to donate a park bench with a deceased love one’s name on a plaque for a port park. The value of the donation would be deductible.
A local soft drink distributor wants to donate free or reduced price soft drinks in one of its vending machines in the employee lunchroom for employee use. This would likely not meet the “support a substantial government function” test.
It is not uncommon to see a proposal whereby a port buys something for less than fair market value, and the difference between the price paid and fair market value is considered a gift. This approach is legal so long as the “support a substantial government function” test is met. There are special rules on the deductibility of cars, boats, airplanes, and the partial value of real estate. All the special rules address the size of the taxpayer’s deduction relative to the depreciated value of the asset and/or determining the fair market value of the asset. For many types of property, the IRS will require a contemporaneous appraisal. Again, look to IRS Publication 526.
When the port district receives a gift, it will likely be asked to provide a certification to the IRS (in the form of a letter or using IRS Form 8283). First, be careful that the donation document (such as a property purchase and sale agreement or a donation agreement) does not contain a promise for a fixed certain deduction value or tax benefit – instead look to the fair market value. Second, be careful about certifying that the gift or donation will “support a substantial government function.” Third, for gifts over $5,000, the donor is required to prepare IRS Form 8283 and present it to the port for a “Donee Acknowledgement.” The port then signs the IRS Form 8283 certifying the value of the gift. Best practice is to have the transaction reviewed by a tax accountant (cheaper than a tax lawyer) to make sure it is complete, accurate and supported by the appropriate valuation method or appraisal before signing IRS Form 8283.
The overall advice here is twofold. First, don’t let boats build up large moorage and other port charges before acting. It only makes a problem worse. Second, disposing of boats with liens is a complex area of law that can have legal exposure if not done correctly so this is one area where a port district needs to consult counsel if anything is unclear.  Chapter 79.100 RCW also applies to “derelict vessels”, but that discussion is left for another column.
If the breach effects more than 500 people a sample copy of the notice must be submitted to the Washington Attorney General. In addition to complying with the requirements in RCW 42.56.590, a port may consider some of the following issues with regard to cyber security: Insurance. Many insurance policies now cover losses from cyber-attacks. These may include the cost to restore data, the notification costs and even credit protection for a period of time for people who have had their personal data compromised. Check your port’s insurance policies and see if your port already has this coverage. If not, your port may want to investigate the cost of adding this coverage. Cyber Hardening. Cyber hardening usually occurs after the attack. Your port may want to consider a cyber audit now to see how the port’s system could be strengthened. For example, it is possible to “encrypt” personal information. RCW 42.56.590 provides that a breach of encrypted data is not a release unless the hacker also gets the encryption keys or passwords. Cyber Recovery. Some hackers merely lockup the computer system and then demand a ransom. Is your port prepared with backup data and hardware so that it can avoid paying these ransom demands and get back up and running in short order? Ports may want to consider identifying the cyber-attack expert now that they will call if there is an attack. Data Control. Ports routinely collect information on tenants. It may be worthwhile to review what personal information your port is collecting and whether or not your port actually needs that data. For example, if your port is collecting social security numbers for all its marina customers, you may want to ask why. Social Security Information. If social security information is disclosed, it is important to move quickly. The IRS can be contacted at http://www.irs.gov/uac/Identity-Protection. One can also call 1-800-908-4490. This will prevent tax-fraud thieves from filing fraudulent tax returns and collecting refunds. Port Employees. The RCW 42.56.590 notification is the minimum that is required by the law. However, if your port system is hacker and employee personal information is stolen you may want to consider an all employee meeting to explain all the appropriate steps, including the report to a credit bureau. Police Reports. In the past, a police report was a prerequisite to insurance claims. However, some insurance policies no longer require a police report to trigger coverage. Frankly, a local police department or sheriff’s department is probably unable to offer much help. Nevertheless, ports are public agencies that should operate with some amount of transparency.
By Frank Chmelik of Chmelik Sitkin & Davis P.S. - January 2019 This month, we take a bit of a technical dive into the issue of public works contracting and a fall 2018 decision of the Washington Supreme Court in Nova Contracting, Inc. v. City of Olympia. This is a “good news case” for port districts and other governments that issue public works contracts. Credit to Gerry O’Keefe at the WPPA for suggesting this topic. First, a bit of the public works contracting process. Municipal governments, including port districts, hire contractors to perform public works construction projects. The public works contracts typically specify a process and timeline for the contractor to provide “notice” to the municipal government in advance of any claim for increased costs resulting from changes to the work, time delays, mistakes or omissions in the plans or unanticipated site conditions. The public works contracts also typically require the contractor file a timely “protest” to a municipal government’s decision on the contract’s claim thereby reserving the resolution for a later time. Let’s take an example. A port district issues a public works contract for a new $1 million warehouse building to be built in six months. One month in, the port district issues a change order to upgrade the warehouse door with a statement that the port district prices the change at $10,000 and no additional time. The contractor says nothing and installs the upgraded door. After the door is installed, the contractor provides “notice” that the door actual costs $50,000, and ordering and installing the upgraded door actually added one month to the project. The port district denies the increase to $50,000 and the increased time. The contractor says nothing. Two months later, the project is finished. Now the contractor files a claim for $40,000 and another $20,000 because the project took an additional month to complete. I am describing a situation where the contractor missed both the “notice” deadline and the “protest” deadline. Under a Washington Supreme Court case from 2003 – Mike M. Johnson, Inc. v. County of Spokane, the contractor loses because it had to strictly comply with the notice and protest provisions in order to make a claim – in our example, the contractor did not file a timely claim and did not protest the port’s decision. The reasoning behind this 2003 decision is sound. The port district must be told in advance of the increased costs or increased time claim so that the port district has the opportunity to decide in advance if it really wants the upgraded door. Once it decides that it wants the door and will only pay $10,000, the port district must be told in advance that the contractor is protesting the decision so again it can decide if it wants the door, knowing that the issue of cost and time is open for further resolution. If the contractor waits until the project is complete to raise the issue, there is nothing the port district could do to avoid the increased cost or time or the fight. Unfortunately, since 2003, a number of courts have declined to apply this standard citing the harsh result that can befall a contractor that failed to strictly comply with the “notice and protest provisions”. Returning to our example, if the door really did cost $50,000 and really did extend the project by one month, the contract would be out the increased dollars because it did not strictly follow the “notice and protest” procedures, and the port district would get a $50,000 door for $10,000 – that is a harsh result for the contractor. Well along comes the City of Olympia which, in 2013, lets a contract to Nova Contracting, Inc. to replace a deteriorating cement culvert along Woodland Creek in Olympia. Problems ensue with the project from the beginning, and Nova complains to the City that many details were missing from the plans, and that it would need more money and more time to complete the project. The City denied the claim for more money and more time and eventually terminates Nova from the project. Nova did not “protest” the City’s decisions in the time and manner provided in the contract. Nova sued for damages. The trial court dismissed Nova’s claim. Division III of the Court of Appeals found for Nova noting that the City may have violated the inherent contractual duty of “good faith and fair dealing”, sending the matter back to the trial court for a trial. The City appealed to the Washington Supreme Court, and last fall in Nova Contracting, Inc. v. City of Olympia, in a unanimous decision, the supreme court dismissed all of Nova’s claims and reiterated that “Mike M. Johnson’s rule of strict compliance” is the law – a “good news” decision for municipal governments. The take-aways here are important for port districts to avoid unanticipated expense in public works projects.
 191 Wn.2d 789 (2018).  150 Wn. 2d 375 (2003).
By Frank Chmelik of Chmelik Sitkin & Davis P.S. - November 2018 Gift Baskets and Other Gifts. This time of year, port consultants like to deliver baskets of fruit, wine and cheese to their valued customers. Port employees and port commissioners can only accept “nominal gifts”, which are usually held to be less than $25, although your port district should have a policy on this. As to that basket, you can return it, you could donate it to a local charity for an auction, provide it as a door prize at an employee meeting or put it into the employee lunchroom for all to enjoy. The wine then needs to be returned, donated or given out as a door prize at an employee meeting. I might add that this same rule applies throughout the year for tickets to concerts or sporting events. One has to only imagine how attending a sporting event or receiving an expensive holiday gift from a port consultant would be explained in an open public meeting to understand the general rule. Port Holiday Parties. Holiday parties can be a fun and productive way to bring employees together. However, port districts cannot pay for the holiday party. Some ports have “employee committees” that raise money to pay for events like a summer picnic or a holiday party. Ports can host “‘employee recognition events” or “all employee luncheons” to provide recognition to employees or groups of employees. At these events, the port can pay for the costs of the employee’s meals (but no alcohol). Port Gifts to Employees. Ports can provide “nominal” (state law term) or “de minimis” (federal law term) gifts to employees for longevity or a particular accomplishment. A port logo hat, a port logo jacket or a plaque are considered “nominal”. The IRS rules (found in IRS Publication 15-B) note that gifts of cash or gift cards are never “de minimis” and therefore subject to tax. Gift Exchanges. Sometimes port employees exchange holiday gifts. There are a couple of things to keep in mind here. First, any gift exchange should be voluntary and organized by employees and not as an official port event. Second, supervisors should not accept gifts from subordinate employees other than as part of a random gift exchange where names are drawn. Third, ports should ensure that any gifts are of nominal value and are of good taste. Fourth, remember that some holiday traditions do not resonate with all port employees’ backgrounds and religious beliefs – better a “holiday gift exchange” as opposed to a “secret Santa”. Remember, it is the port’s workplace, and the port retains a duty to its employees for that workplace. Here, a port policy goes a long way to clarifying these issues. Holiday Events. By now you all are thinking “great – more prohibitions from the lawyers – bah humbug.” Point well taken. Over the years, I have seen many creative events organized by ports and port employees such as holiday concerts, food drives, ginger bread house competitions and senior port staff and commissioners cooking a holiday season breakfast for the port employees. So long as the value is “nominal” and participation is voluntary, holiday events can be a fun part of the season. Holiday season activities, like most aspects of public employment, must be viewed from the perspective of the public, the perspective of other employees and preservation of the reputation of the port district in the community. In my experience it is rarely about a public employee looking for a benefit; rather, it is usually about a failure to fully consider how something could be perceived by other employees or the public. From all of the staff and attorneys at our firm, we wish all of you a very happy holiday season.
By Frank Chmelik of Chmelik Sitkin & Davis P.S. - WPPA Counsel (October 2018) A new case from the United States Ninth Circuit Court of Appeals may impact how the ports address the problem of homeless people and port property. To be clear, homelessness is a national, state and local problem that deserves compassion and attention. With that understood, several ports have inquired about the impact of United States Ninth Circuit Court of Appeals case, Martin v. City of Boise, No. 15-35845, decided on September 4, 2018 (the Ninth Circuit is the federal appellate court that includes Washington State). I suspect that some ports have heard about this case from the local city governments where the impact is being carefully evaluated. Now some ports are considering the effect on port parks, marinas, airport terminals and other places of public accommodation. Martin v. City of Boise involved a lawsuit brought by several homeless individuals challenging their criminal convictions based upon the constitutionality of two City of Boise criminal ordinances. The ordinances in question were broadly worded to criminalize both the use of “any of the streets, sidewalks, parks, or public places as a camping place at any time” (defining “camping” broadly) and banning “sleeping” in any public place. The court ultimately found the Boise ordinances to be in violation of the Eighth Amendment of the United States Constitution holding that “so long as there is a greater number of homeless individuals in [a jurisdiction] than the number of available beds [in shelters],” the jurisdiction cannot prosecute homeless individuals for “involuntarily sitting, lying, and sleeping in public.” The Court clarified that as long as there is no option of sleeping indoors, the government cannot criminalize indigent homeless people for sleeping outdoors on public property based upon the false premise they had a choice in the matter. This seems like a growing issue for ports, and based upon the Martin case, ports ought to consider their positions with regard to homeless people camping or sleeping in their parks, marinas, airport terminals and other places of public accommodation. I know ports have worked with other local governments to help be part of solutions, but these ports are also concerned about the real impact on their facilities and their customers. Typically, if someone were violating port rules on port property, the police would be called, and the person would be asked to leave or be charged with criminal trespassing. Now, local policing jurisdictions may be reluctant to issue citations in the face of the Martin case. Here are some actions that I think ports may want to take.
Understand that the Port is Liable for Common Area Injuries. Ports, like all landowners, are liable for injuries that occur on property open to the public or groups of tenants – so called “common areas”. Simply stated, the duty is “inspect, warn or make safe”. There are exceptions like the Recreational Use Statue, but the port should have a procedure to routinely inspect and either warn of a danger or make it safe. Do Not Retain Too Much Control Over Tenant or Contractor Worksite Safety – the Multiparty Worksite Safety Rule. In Washington, employers have responsibility for the workplace safety of their own employees. However, in Washington, where there are multiple employers operating in the same space (such as a construction site with a general contractor and multiple subcontractors), the entity that controls the worksite is responsible for the safety of everyone (not just its employees) on the multiparty site. This common-sense rule recognizes that as a practical matter, as all the subcontractors are moving in an out of a site, it is only the general contractor that can look after overall safety. The “multiparty worksite safety rule” has been extend to other situations where the ability to control safety has been retained by a landlord or an owner if the retained control is direct and sufficient (examples include the right to stop a tenant or contractor from operating if the port sees a safety issue or the requirement that all tenant or contractor employees attend a port safety class and get a port permit to operate on the site). The better practice is to require the tenant in the lease or the contractor in the construction contract to comply with all applicable regulations, including those related to safety. The violation of those regulations would then be a breach of the lease or contract.
By Frank Chmelik of Chmelik Sitkin & Davis P.S. - WPPA Counsel (August 2018) This month, we will take a quick walk through the ports’ liability for personal injury or property damage on port property. The issues surrounding liability come up from time to time and touch all aspects of port operations. There are several steps that prudent port districts should take now to minimize the cost and disruption from claims later. Understand the Port’s risk. Washington law (unlike most states) looks at the reason the person is on port property and applies a different standard to each reason. Here is a basic outline.
Develop a program of inspection, reporting and response to complaints for common areas and recreational areas. The “best practice” is to have a system of periodic inspections, an adequate reporting system and a method to promptly address unsafe conditions either thorough signage or repair. Provide adequate signage in common areas and recreational areas. Consider signs that designate recreational use areas. Where there is a reoccurring chance of injury or property damage, consider a warning sign. Train port employees on an incident reporting system. Incidents (property damage, slip and falls and other injuries) will occur. Port staff should have access to and training in completing an incident reporting form with pictures documenting what happened. Typically, claims can come in several years after the incident. It is nice to have records. Develop a program to pay small claims. Experience shows that paying for torn clothing, minor injuries or other minor property damage can avoid more expensive litigation and spending deductibles. Care should be taken to require a release in exchange for the payment. This program should be run by the port’s insurance adjuster. To be clear, property damage and personal injuries are relatively rare. But when significant losses do occur, the very first thing everyone does is scramble to review the agreements. Whether that is followed by object panic or a sigh of relief depends on what the port has done ahead of time.
By Frank Chmelik of Chmelik Sitkin & Davis P.S. - WPPA Counsel (July 2018) Several items of interest to port commissioners have arisen over the past few months. They are not related but taken together provide some (I hope) useful information. The Port Commission Appoints Three Positions. The port commission appoints the executive director, the port auditor and the port attorney. These three appointees report directly to the port commission and serve at the pleasure of the port commission. The port commission must rely on these folks to provide honest and accurate reports and opinions.
The Executive Director, Auditor and Attorney Work Together to Protect the Port. These three direct reports provide a “check & balance system” and a sounding board where proposed actions or initiatives are discussed. The executive director manages the port and insures the port commission is kept fully appraised of the port’s operations. The auditor makes sure all the income and expenditures are properly tracked, in compliance with proper GAAP and state auditor accounting rules and that the port commission has a clear picture of the finances. The port attorney makes sure that proposed actions have a legal basis and that the commission is fully appraised of the legal consequences of proposed actions. Practically speaking the executive director, the port auditor and the port attorney frequently discuss the appropriate course of action and keep the commission appraised of all significant actions or issues. All three must recognize that the port commission ultimately runs the port. After all, RCW 53.12.010 provides that “the powers of the port district shall be exercised through a port commission consisting of three or, when permitted by this title, five members.” The Port Will Defend Port Commissioners and Pay Judgements in Lawsuits. It is not unheard of for individual commissioners to be named in a lawsuit alleging some action taken by the port or by the port commission. RCW 53.08.208 provides that a port district may defend and indemnify its port commissioners (and other port employees) in lawsuits “arising out of the performance or failure of performance of duties.” The port commissioner must request the defense and indemnification. This done by letter. After the request is received the port appoints a lawyer to defend the port commissioner (the “defense”). As discussed below, practically speaking this is likely done by in conjunction with the port’s liability insurance carrier. The port will also pay any settlement or judgement (the “indemnification”) provided that the port commissioner “acted in good faith” and “within the scope or his/her duties as a port commissioner.” The Port’s Insurance Company Will Likely Provide a Defense and Indemnification. The defense under RCW 53.08.280 should not be confused with the duty a port insurance carrier likely owes to each commissioner (and port employee) to provide a defense and pay any settlement or judgement because most commercial general liability insurance policies issued to ports define the “insured” to be the port, its commissioners, officers and employees. Generally, the insurance company duty to defend is broader then the RCW 53.08.280 duty. Moreover, most ports have also purchased “directors and officers” liability insurance which specifically covers lawsuits against port commissioners for actions in the course of their duties. The insurance is triggered by a letter enclosing the claim. Don’t be surprised if the first letter back from the insurance company seeks to defend under a “reservation of rights” or “denies” coverage. Lawyers are not surprised either and usually follow up with additional information that results in coverage.

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