Business
The Entrepreneur’s Lab Video Series: Definitive Sales Agreement
Definitive sales agreement – the sales agreement is the key document for the seller in a transaction. It encompasses the hard work of the parties from LOI through diligence. Definitive agreements typically are drafted by the buyer’s counsel and will be a large document with many moving parts. A few of the key parts are as follows: The business terms: A seller needs to make certain the key terms in the LOI are accurately and fully reflected in the agreement. Typically, the first portion of a definitive agreement speaks to the price, the payment terms, and the related items. Representations, warranties and covenants: The largest part of the agreement will be the various reps and warranties required of the seller. These reps are statements of truth about the business and will need to be carefully reviewed with legal counsel to make certain no modifications are necessary. Conditions to closing: A seller needs to be keen on any conditions in the agreement that need to be satisfied prior to closing. Such conditions could include buyer’s financing or the obtainment of certain customer consents. Indemnifications: Remember the buyer will want to pass the risk of any issues arising prior to closing back to the seller. A seller needs to fully understand the risk of indemnification and make efforts to cap and/or limit future exposure. Disclosure schedules: These schedules supplement the agreement, especially the reps and warranties. In many respects, disclosure schedules culminate and complement the diligence process. As a seller, disclosure and completeness is your friend. Make certain that your sell-side schedules are accurate. Originally posted 2/16/18. No content changes.
September 26, 2024
Family Law
Understanding Alimony in Maryland: Types, Factors, and How It's Awarded
When a marriage ends, financial considerations often play a significant role in the divorce process. One key financial aspect is alimony, also known as spousal support. Alimony provides financial assistance to a spouse who may be at an economic disadvantage post-divorce, helping them to transition to their new circumstances. In Maryland, courts award alimony based on specific guidelines and factors to ensure a fair outcome for both parties. This blog explores how alimony is awarded in Maryland and what factors influence the court's decision. Types of Alimony in Maryland Maryland law recognizes three primary types of alimony: Temporary Alimony (Pendente Lite): Awarded during divorce proceedings, temporary alimony helps the financially dependent spouse maintain stability until a final decision is reached. This type of alimony ensures that immediate financial needs are met while the divorce is ongoing. Rehabilitative Alimony: This is the most common type awarded in Maryland. It is intended to provide financial support for a specific period, allowing the recipient to become self-sufficient through education, training, or employment. The goal is to equip the recipient with the skills or resources necessary to achieve financial independence. Indefinite Alimony: In some cases, the court may award indefinite alimony when the recipient spouse cannot reasonably be expected to become self-supporting. This type is less common and is typically granted when there is a significant disparity in earning capacities or if the recipient is of advanced age or has health conditions that prevent self-sufficiency. Understanding these types of alimony is crucial as they set the stage for how courts assess individual cases. Factors Influencing Alimony Awards When determining whether to award alimony, as well as the amount and duration of the payments, Maryland courts consider several key factors: Ability to be Wholly or Partly Self-Supporting: The court examines the recipient's potential to gain employment or improve their financial situation through education or training. Time Necessary to Gain Sufficient Education or Training: The court considers how long it will take for the recipient to acquire the skills needed to become self-supporting. Standard of Living During the Marriage: The court aims to maintain a standard of living for the recipient that is reasonably comparable to that enjoyed during the marriage. Duration of the Marriage: Longer marriages are more likely to result in alimony awards, particularly indefinite alimony, especially when there is a significant disparity in earning capacities. Contributions to the Family: The court evaluates the monetary and non-monetary contributions made by each spouse, including homemaking and child-rearing responsibilities. Circumstances Leading to Estrangement: Fault-based factors, such as adultery or abuse, may be considered when determining alimony awards. Age and Physical and Mental Condition: The court assesses the physical and mental condition of both spouses health and age of both spouses, as these factors can impact the recipient's ability to become self-supporting. Paying Spouse's Ability to Meet Their Own Needs: The court ensures that the paying spouse can afford the alimony payments without undue hardship. Agreements Between the Parties: Any prenuptial or postnuptial agreements may influence the court's decision regarding alimony. Conclusion: Alimony is a crucial aspect of divorce proceedings in Maryland, designed to provide financial support to a spouse in need. Understanding the various types of alimony, the factors that influence the court's decision, and the potential for modifying alimony awards can help individuals navigate this complex aspect of divorce more effectively. If you are facing a divorce and have questions about alimony, consulting with an experienced family law attorney can provide valuable guidance, ensuring your rights are protected.
September 26, 2024
Family Law
Divorce and the Professional Athlete: Managing Assets, Custody, and Public Scrutiny
Representing an athlete through a divorce requires a unique blend of legal expertise, emotional intelligence, and public relations savvy to guide a high-profile client through this complex and challenging period. Professional athletes live under constant public scrutiny and media attention, with their personal lives often under a microscope. This heightened visibility can add significant pressure during a divorce. To effectively advocate for their client's interests, legal representatives must understand and navigate this unique environment. Navigating Asset Division The legal landscape for divorcing athletes is intricate, with elements that differ from a typical divorce case. Professional athletes often possess substantial and complex asset portfolios, including endorsement deals, contracts, and investments. Accurately, valuing these assets and negotiating their division can be challenging. Recommendation: Work with professionals who specialize in high-net-worth divorces and understand the nuances of athletes' contracts, including potential future earnings. Determining spousal support or income for child support can be particularly complex, as factors such as the athlete's contract, endorsement deals, current income, future earning potential, age and health must all be considered. Custody Considerations When children are involved, their well-being is paramount. Navigating custody arrangements requires sensitivity and an understanding of how the athlete's career demands may impact their parenting. Recommendation: A creative attorney will collaborate with child psychologists or family counselors to develop a custody schedule that prioritizes the children's emotional needs while accommodating the athlete's career obligations. Managing Public Scrutiny The athlete's personal life will likely attract significant media attention, making the management of public perception and privacy a critical aspect of representation. Developing a proactive media strategy is essential for controlling the narrative, and the sooner this is implemented, the better. Recommendation: This strategy may include preparing public statements, managing press inquiries, and addressing rumors before they escalate. It's vital for the divorce legal team to work with a PR team experienced in handling high-profile cases to mitigate potential damage to the athlete's public image and their family. Ensuring the client's privacy during the divorce process is also paramount, which includes managing court documents and legal filings to minimize leaks and public scrutiny. Virtual platforms like Zoom and Teams can also provide a secure way for athletes to meet with their attorneys without the risk of paparazzi intrusion. Emotional Support Divorce can take a significant emotional toll, particularly for those in the public eye. Athletes may experience heightened stress due to media scrutiny, public pressure, and potential career impacts. Providing emotional support is as important as legal representation. Recommendation: Encouraging athletes to seek counseling or therapy can provide a valuable outlet for dealing with the emotional strain; a support network of trusted friends, family, and mental health professionals can be instrumental in this process. It is essential to help the athlete stay focused on their career and personal well-being during the divorce process, which may involve collaborating with their coaching and management teams to ensure their professional commitments are managed effectively. Strategic Future Planning Divorce can have significant and long-lasting implications for an athlete's career and personal life, making strategic planning for the future essential. Assessing how the divorce may impact the athlete's career trajectory, endorsements, and public image is important. Recommendation: Developing strategies to mitigate potential negative effects is crucial for preserving their professional reputation. Additionally, post-divorce financial planning should address changes in income, expenses, and asset distribution. Collaborating with financial advisors to develop a robust plan for managing their finances is vital for long-term stability. Conclusion In summary, representing a professional athlete through a divorce requires a comprehensive approach that integrates legal, emotional, and public relations considerations. By understanding the unique aspects athletes face — such as complex asset portfolios, custody arrangements, and the need for media management — legal representatives can effectively navigate this difficult period. Ultimately, the goal is to protect the athlete's interests while preserving their personal and professional integrity in this high-stakes process. Implementing these recommendations can enhance the effectiveness of representation and support the athlete through this challenging transition.
September 25, 2024
Estates and Trusts
The Estate Planning Benefits of Marriage: What Unmarried Couples Need to Know
It is becoming increasingly commonplace for people to enter long-term romantic relationships without legally marrying. While there are no exact statistics on how many Americans fall into this growing category, a 2019 Pew Research Center study estimated that 12% of Millennials were living with an unmarried partner, compared to 8% of Gen Xers—an increase of 50% from one generation to the next. While this trend is influenced by various social and political factors, many of these couples may not fully appreciate the extensive economic and legal benefits they forgo by remaining unmarried to their partner. In fact, over 1,000 federal laws provide legal benefits and privileges to married couples. It is beyond this article's scope to discuss every way in which the law favors married couples. Rather, this article will highlight just a few of the many estate planning benefits and opportunities that are conferred on married couples that are not shared by unmarried couples. As I will illustrate, often with little planning, married couples can defer, reduce, or completely eliminate taxes. Unlimited Marital Deduction - Lifetime Gifting Any gift exceeding the annual gift tax exclusion amount, which in 2024 is $18,000 per donor per recipient, is a taxable gift that must be reported by filing a gift tax return (IRS Form 709). However, there is a very significant exception to this rule. One spouse may convey to the other spouse an unlimited amount of assets at any time and as often as desired without incurring any gift tax liability. This creates many estate planning opportunities. As just one example, married couples can strategically retitle assets between each other to maximize the “step-up” in the capital tax basis that these assets receive at death. The “step-up” means that any appreciation in an asset from when the decedent first acquired it gets wiped away at death, and the recipient receives the asset with an adjusted capital tax basis as of the decedent’s date of death. Thus, married couples can convey assets to each other so that upon the death of the first spouse, the surviving spouse receives highly appreciated assets with a one-half or even full step-up, saving significant capital gains taxes when the asset is later sold. Unlimited Marital Deduction – Inheritance The unlimited marital deduction also applies to transfers between spouses at death, shielding the surviving spouse’s inheritance from any estate taxes. This powerful tool allows the surviving spouse to defer the payment of any estate taxes resulting from the first spouse's death for their entire lifetime. This gives the surviving spouse time to spend down or gift these assets to minimize or eliminate estate tax liability for their future heirs at the time of their death. The unlimited marital deduction is also key to “by-pass” trust planning, a technique that ensures that no estate taxes are owed at the death of the first spouse while maximizing the use of their estate tax exemption. By-pass trust planning works as follows: upon the first spouse’s death, two trusts are established for the surviving spouse’s benefit. One trust is funded with assets up to the estate tax exemption amount, allowing these assets to continue to appreciate outside the surviving spouse’s estate. When the surviving spouse passes away, this trust terminates, and the assets are distributed to the ultimate beneficiaries free of estate tax. The second trust is funded with the remaining estate assets and is structured to take advantage of the unlimited marital deduction. Portability A spouse may claim the deceased spouse’s unused exemption (DSUE) for their later use via a concept known as portability. To claim the DSUE of the deceased spouse, the surviving spouse must timely file a federal estate tax return (IRS Form 706). Unlike a “bypass” trust plan, portability requires no advanced estate planning and incurs no administrative costs or inconvenience. Regardless of any subsequent changes in the law, the DSUE will be available for the surviving spouse to benefit from in their estate. With the current estate tax exemption amount at a historical high, it is a particularly advantageous time to file an estate tax return solely for portability purposes. Those intending to rely on portability planning should be cautious, as the surviving spouse cannot claim any unused state estate tax exemption amount. Therefore, portability planning may be sufficient for residents of New Jersey, which abolished its estate tax in 2018, but it may not be adequate for residents of New York, which has an estate tax. Unused generation-skipping transfer tax exemption amounts are also not portable between spouses. Inheritance Tax For New Jersey residents, an inheritance tax is imposed on certain classes of recipients of a decedent’s estate assets. The surviving spouse, a Class “A” beneficiary, is wholly exempt from inheritance tax liability. For those married clients who wish to provide an inheritance for beneficiaries in a class that would be subject to the inheritance tax, making lifetime gifts outright or in an irrevocable trust remains a valid strategy for avoiding the inheritance tax. Inherited IRAs Before the enactment of the SECURE Act, beneficiaries of inherited IRAs were permitted to take required minimum distributions (RMDs) based on their life expectancy. A beneficiary younger than the original account owner would have much smaller RMDs, allowing the IRA assets to appreciate over a long period of time income tax deferred. The SECURE Act largely eliminated this strategy. Under current law, most beneficiaries must liquidate their inherited IRA within ten (10) years of the death of the original account holder. The SECURE Act carved out an exception to this rule; it allowed those deemed an “eligible designated beneficiary” (“EDB”) to take RMDs based on their life expectancy. Among the limited categories of EDBs, you guessed it, the surviving spouse is deemed an EDB. A husband or wife who outlives their spouse for many years could see these assets significantly appreciate over their lifetime. Moreover, the surviving spouse has significantly more flexibility in taking withdrawals above the RMD in years when the assets will be taxed at lower marginal income tax rates. Challenges for Unmarried Couples The flip side to all the planning opportunities available to the married couple is that the unmarried couple cannot benefit from any of them. Any gifts between the unmarried couple above the annual exclusion amount would be taxable. Unmarried couples who receive the inheritance of their deceased partner’s estate may be subject to estate taxes, significantly reducing the assets that the surviving partner would otherwise have available for their support. In New Jersey, in addition to any estate tax liability, a non-married surviving partner may be subject to inheritance tax liability. Lastly, the surviving partner may not be an EDB; thus, they will need to withdraw the entire amount of the IRA within ten years, potentially losing out on years of further appreciation. Of course, the unmarried couple still needs estate planning. Indeed, if an unmarried person were to die without preparing a will or trust, the intestacy laws of most states would direct their assets automatically to children, parents, or siblings. There are also tax planning techniques available for the unmarried couple to reduce estate taxes, such as the establishment of one or more lifetime irrevocable trusts. This kind of planning, however, is more expensive, and the administration is costly and burdensome. State legislatures have taken some meaningful steps to protect the rights of unmarried couples in recent years. For example, both New York and New Jersey recognize domestic partnerships, a legal arrangement that confers some of the benefits afforded to married couples on unmarried couples. For example, a domestic partner in New Jersey is a Class “A” beneficiary, exempt from inheritance tax. However, most tax planning opportunities available to married couples remain unavailable to domestic partners. I am hopeful that future legislatures will address some of these disparities, particularly as the unmarried share of the population continues to grow. However, until that legislative fix occurs, sometimes the best planning advice for an unmarried couple in a long-term relationship is to change their marital status.
September 24, 2024
Business
Not Sure if Your Company Is Ready to Sell? Consider the PAEI Model
For most business owners, the chance to sell your enterprise is a once-in-a-lifetime opportunity. But if you take that offer too early or at the wrong stage of business development, the sale could result in a number of undesired outcomes: a low valuation, difficulty finding a buyer, management disputes, contract issues, and other legal problems. Selling a business is like preparing a meal. It’s crucial for a business owner to be able to recognize if their business is either under or overcooked before taking it to market. Unfortunately, it’s not as simple as using a meat thermometer. Instead, owners rely on systems such as the PAEI Model, which Dr. Ichak Adizes developed in the 1970s to track business growth and stability. To this day, business owners use the model to understand their organizations’ lifecycles through the lens of management dynamics. How the PAEI Model Works “PAEI” stands for four different yet common management personae that affect a business’s short-term and long-term performance. Producers are managers who are task-oriented and focused on tangible results. They demonstrate big-picture thinking with little regard to interpersonal or individual concerns. Administrators are managers driven by procedure and planning, with a strong focus on routine and structure in order to maintain success. Entrepreneurs are managers driven by dreams and future achievement. They’re concerned less with day-to-day operations and more with a broad, long-lasting vision of the business. Integrators are managers who work well with others. These individuals are adept at both considering and balancing the concerns of other managers and employees. Each of these roles is important to business development, but each has its own time. The PAEI model lays out an arc of business growth, starting with “Courtship” (when an owner “flirts” with the business idea), which leads to “Infancy,” “Go-Go,” “Adolescence,” “Prime,” and ultimately stability. Which Stage Is the Ideal Moment to Sell? Every stage can spin off into a negative conclusion. For instance, Infancy can result in “Infant Mortality” when there’s nothing left but a Producer. Adolescence, meanwhile, can result in “Divorce” (the owner and the company split), which may lead to “Premature Aging” (the company peaks early without an entrepreneurial vision) and an “Unfulfilled Entrepreneur.” To avoid the potential pitfalls during every stage of a business’ lifecycle, each one of the four management styles must be present. But not everyone comes to the foreground in every stage. Instead, a single management style or combination of styles takes dominance at certain points along the way. For example, in Courtship, the very beginning stages of a new business, the Entrepreneurial management style is required for crafting the initial big ideas and long-term goals that will sway investors and fund the enterprise into Infancy. Once the money rolls in and the business reaches Infancy, it’s important for a Producer to recognize how to responsibly use the startup funds to survive on a daily basis. After some inevitable growing pains, a business reaches Adolescence with the help of an Administrator, whose management style shifts the focus away from sales and revenue generation—and toward cost-cutting, boosting profits, and keeping the company lean. At this stage, an organizational structure is key in order to reach the Prime period of a lifecycle. When the business is in its Prime—when profits are up, operations are running smoothly, and customer satisfaction is at an all-time high—that’s when it’s time to sell. Yes, believe it or not, the best time to sell your business is usually right before it reaches the Stable stage. While further growth can seem all but guaranteed at the Prime stage, according to the PAEI model, most companies begin to falter and precipitously lose value once they’ve become Stable. This is the period in which the Entrepreneurial management style begins to fade, and the Administrative and Integrator styles achieve dominance. In other words, the initial visionary is replaced by people who excel at bureaucracy and longevity. In the realm of mergers and acquisitions, the Integrator is frequently the buyer. As a seller, it’s up to you to ensure the business has reached its Prime and that all the elements are in place for continued success—and to get out right before the business peaks and starts to lose value. While the PAEI Model is not a guaranteed method of success, I believe it can provide rare insight into the business lifecycle. It presents a valuable framework for the roles and traits it takes to reach success and ultimately earn the highest possible sale price for your company.
September 19, 2024
Estates and Trusts
Protecting Your Legacy: Trust and Estate Planning for Musicians
Understanding how to protect and transfer these invaluable assets can ensure that a musician's creative legacy endures and continues to benefit future generations. Embarking on the journey of music copyrights and estate planning is like composing a symphony of legal and financial strategies for musicians and their heirs. Unlike many professions, a music career brings a distinct set of legal and financial challenges, making it crucial for artists to manage their legacies with care. Given the unpredictable nature of the music industry and the substantial value of intellectual property (IP) assets, having a solid plan is not just advisable—it’s essential. Understanding how to protect and transfer these invaluable assets can ensure that a musician’s creative legacy endures and continues to benefit future generations. One of the most important things musicians must pay attention to is their IP rights. It’s important to recognize that with music copyrights there can be multiple copyrights involved in a single song, including the copyright of the composition and the lyrics if they were composed with a partner and separately from the score. So, there are a lot of moving parts to track with a musical piece. Understanding the basics of music copyright is essential before delving into estate planning. A copyright is a collection of legal rights initially owned by the author, including the right to perform the work publicly. These rights are treated like other intangible assets and can be owned jointly, held in trust, or transferred by gift or at death. Properly inventorying and valuing your music copyrights is a critical first step in estate planning. A qualified appraiser can help determine the worth of these assets by examining their income history or market value, which aids in evaluating estate planning options and predicting potential gifts or estate taxes. Ensuring that copyrights for compositions and recordings are registered correctly and that proper powers are provided to trusted successors is key to a portfolio, inheritance, and a comprehensive estate plan. For example, assigning these rights to a trust is an excellent way to provide ongoing income to beneficiaries. Musicians must also account for how royalties should be managed and distributed. This can involve setting up trusts specifically for royalty income. One idea is for musicians to set up management companies to handle their IP assets that can provide continuity and professional management of the musician’s works after death. Let’s take a lesson from Taylor Swift. The key lesson is to protect yourself early. Swift owned the composition of her music; however, she didn’t own the master recordings, and they were purchased without her blessing. To remedy that, Swift famously and with fanfare re-recorded her songs to secure rights to master recordings for most of her catalog. Musicians must also carefully consider who will oversee monetizing their music and brand after they die. Who do they want to decide how their image is used, whether their songs can be used in movies or TV shows, or whether they want to be a hologram? Musicians often have dependents, such as children or elderly parents, who rely on their income. Like many who pass without advance planning or an estate plan, a musician’s assets may go through probate, a time-consuming and public process. Estate planning tools like trusts can help avoid probate, ensuring a smoother transition for heirs and provide for these dependents long-term. Estate planning for musicians also involves navigating complex tax issues, especially when significant estates that may be subject to federal and state estate taxes are involved. Proper planning, including using trusts and charitable donations, can help mitigate these taxes. Beneficiaries may have to pay taxes on royalties and other income from the musician’s IP. Structuring the estate to minimize these taxes is crucial. Musicians making substantial gifts during their lifetime should be aware of potential gift tax implications. Key Legal Instruments in Estate Planning Several legal instruments are crucial in the estate planning process for musicians: Wills: A will is a foundational document in estate planning that outlines how a musician’s assets should be distributed upon death. A will provides for the distribution of property you own at the time of your death. This can include your instruments, gear, and assets related to your music career. You can also designate who will be responsible for managing your music and other intellectual property after your passing. Generally, you may gift your property in any manner you choose. However, wills must go through probate, which can be avoided with other tools. Trusts: A trust is a legal arrangement that allows you to transfer ownership of your assets to a trustee, who can manage those assets for the benefit of your beneficiaries. This can be a useful for musicians to ensure that their loved ones are taken care of after their passing. Trusts are flexible tools that can manage and distribute a musician’s assets according to specific instructions. They can be beneficial for managing ongoing royalty streams and providing for dependents. Of importance for artists is how the handling of the intangible assets known as digital assets are managed post-mortem. These are issues properly handled in an estate plan. In a comprehensive estate plan, there can be multiple trust structures for planning and gifting. Revocable Trusts: A trust created during one’s lifetime may be revocable. Like it suggests, this means it may be revoked or changed by the settlor (“Introduction to Wills—American Bar Association”). These trusts allow musicians to retain control over their assets during one’s lifetime and provide instructions for distribution after death. Irrevocable Trusts: An irrevocable trust means it cannot be revoked or changed by the settlor. This is useful in gifting strategies for artists considering their taxable estate. Health Care Power of Attorney: You have the right to decide who can make decisions about your health care. These documents allow musicians to designate someone to make healthcare decisions on their behalf and outline their instruction for medical treatment if they become unable to communicate. It is not only important to create an estate plan for musicians, but also critical that the estate plan is kept up to date. Things change, mangers change, people get divorced, and children get added, as do grandchildren. Perhaps the person who was first designated as the manager of the estate is out of the picture. It is essential to keep the estate plan up to date as circumstances change, and to make sure that family is aware of updates. In the world of music, where creativity and complexity blend, trust and estate planning strike the right chords for crafting a lasting legacy. By partnering with legal experts who understand the intricacies of intellectual property and the unique needs of entertainers, musicians can craft a plan that not only safeguards their legacy but also ensures their artistic vision endures. This thoughtful approach transforms a vibrant career into a timeless legacy, preserving the essence of their contributions for future generations. Reprinted with permission from the September 10, 2024, issue of The Recorder. © 2024 ALM Media Properties, LLC.
September 18, 2024
Estates and Trusts
Navigating NIL Deals: Why Estate Planning is Essential for College Athletes
As September brings students back to school across the country, college athletes are encountering new opportunities and challenges, particularly with the recent developments in Name, Image, and Likeness (NIL) rights. Now able to leverage their personal brand as a valuable commodity while competing at the collegiate level, athletes face a paradigm shift that requires financial literacy and strategic planning. This transformation has turned student-athletes into potential entrepreneurs, with their talents and popularity becoming marketable assets. One crucial element of a strategic plan that is often overlooked is estate planning, which can protect a student-athlete’s newly acquired assets and ensure long-term financial security. The NIL “Revolution” The National Collegiate Athletics Association’s (NCAA) decision to allow athletes to profit from their NIL rights has opened a significant and long-overdue financial door for college athletes. Now, they can capitalize on endorsement deals, social media partnerships, and even personal business ventures during their college careers rather than waiting for professional opportunities to unlock financial rewards. However, with these new earnings come added complexity. For young athletes, rapidly growing income and brand recognition introduce significant financial and legal considerations. Estate planning—often thought of as something for older individuals—becomes crucial for these athletes to manage their wealth, mitigate taxes, and ensure long-term security. Estate planning involves organizing how assets will be managed and distributed in the event of incapacitation or death. It typically includes creating wills, trusts, powers of attorney, healthcare directives, and implementing tax strategies. For college athletes, however, estate planning is not just about planning for life after death—it is about protecting assets, managing new income, and ensuring their families and loved ones are cared for in case of the unexpected. Why Should the College Athletes Plan Ahead? Asset Protection: NIL deals can yield substantial income, with earnings likely to increase as an athlete’s career progresses. A comprehensive estate plan helps protect this wealth from creditors, lawsuits, and other risks. Trusts, for instance, can provide a layer of legal protection, ensuring that the newfound fame and exposure do not lead to financial vulnerability. Trusts can also facilitate smooth transfers in the event of incapacity. Tax Efficiency: Significant earnings from NIL deals can result in hefty tax liabilities. An estate plan can implement strategies to reduce tax exposure during an athlete’s career, into retirement, and beyond. Since tax laws vary by state, working with an expert can help athletes navigate complex tax requirements and avoid overpaying. Disability Planning: In high-contact sports like football, soccer, or basketball, the risk of injury is always present. Estate planning can include provisions for medical or financial decision-making in case of incapacitation due to injury. This ensures that a trusted individual is in place to manage the athlete’s financial affairs and act in their best interests, even if they are unable to make decisions themselves. Brand Management: For student-athletes whose personal brand significantly contributes to their earnings, estate planning can safeguard their image, likeness, and business ventures, even after their retirement. A well-structured trust or corporate entity can hold and manage these rights, ensuring that the athlete’s brand remains protected and managed according to their wishes. The Foundational Elements of an Athlete’s Plan Last Will and Testament: The cornerstone of any estate plan. It outlines how assets should be distributed and designates guardians for any dependents, ensuring that loved ones and interests are cared for according to the athlete’s wishes. Trusts: Offer flexible tools for asset protection, tax planning, and managing income over time. They help avoid probate, reduce tax burdens, protect trust assets from potential lawsuits, and provide tailored terms for beneficiaries. Power of Attorney: This document grants a trusted individual the authority to make financial and legal decisions on behalf of the athlete if they become incapacitated or even if the athlete is unavailable due to in-season travel, ensuring that important matters are handled effectively in their absence. Healthcare Directives: These directives detail medical care and treatment preferences and designate someone to make healthcare preferences and appoint someone to make healthcare decisions if the athlete is unable to do so due to injury or illness. This ensures that their medical treatment aligns with their wishes. Business and Brand Succession Planning: For athletes with substantial earnings from NIL deals, succession planning is crucial. This includes strategies for protecting intellectual property, trademarks, or businesses tied to their name and image. Proper planning ensures their brand and business ventures are preserved and managed in alignment with their long-term goals, even after death, to ensure that their loved ones reap the benefit of their brand well into the future. The Importance of Estate Planning in the NIL Era In the fast-paced and often unpredictable world of college sports, estate planning provides student-athletes and their families with a crucial safety net. As NIL deals continue to grow in both value and complexity, so too does the need for thoughtful estate management. Estate planning equips athletes with the tools to protect their assets, preserve their brand, and ensure their legacy both on and off the field. For any college athlete navigating the new NIL landscape, estate planning is not just a financial strategy but a pathway to long-term security and peace of mind for themselves and their loved ones. If you or your family are navigating the opportunities and challenges of NIL agreements, it’s worth considering a conversation with someone who understands both the legal and financial landscape. Candace Dellacona is available to discuss how estate planning can fit into your broader financial strategy, ensuring you’re prepared for the future.
September 17, 2024
Commercial Litigation
Does Maryland’s Anti-SLAPP Statute Achieve Its Intended Purpose?
"Originally published in the Maryland Bar Journal, Vol. 6, Issue 2, Summer 2024." An anti-SLAPP law is designed to prevent strategic litigation against public participation (SLAPP), which is litigation that, in its essence, seeks to chill protected speech. Thirty-three states and the District of Columbia have anti-SLAPP laws. Maryland, which promulgated its anti-SLAPP Statute in 2004, is included in this group, but despite being in effect for 20 years, the Statute has only been successfully invoked twice. Courtney Fix is one of those who found relief under this Statute. When Courtney Fix posted “be careful of the tequila in Baltimore, only drink from who you know personally” to her 16,000 Instagram followers in early April 2021, she had no idea that the events that would follow would dramatically change her life. This post, which was vague to many, had a specific meaning - a friend confided in her that she was sexually assaulted by a then-emerging Baltimore restaurateur who gave her a “special” tequila. Courtney did not anticipate the number of women that would contact her directly asking if that post was about the very same restauranteur. As those direct messages came in, Courtney felt the need to do something, and so she confronted the restauranteur directly. He denied any wrongdoing, but nevertheless, Courtney, who believed the women that contacted her, posted a warning to women on her Instagram to avoid associating with this individual. After Courtney’s “warning” post, she began receiving hundreds of direct messages from women detailing incidents of sexual violence, abuse and misconduct committed by various men who primarily worked in the restaurant and hospitality industry in the Baltimore area. While Courtney did not know the women who were messaging her, she felt a responsibility to listen and help. A common thread amongst these messages were requests for Courtney to share their stories as well and to disclose other men who committed wrongful acts. Wanting to help the women messaging her, Courtney decided to honor their requests and share their stories to her 16,000 followers. She posted screenshots of the direct messages, while withholding the identity of those who contacted her. Notably, Courtney only shared survivors’ stories if she received multiple messages from different people that showed a similar pattern of behavior committed by any alleged perpetrator. While Courtney did not actually author any content that detailed allegations of criminal or other sexual misconduct, she posted content that included her own commentary and opinions of the individuals identified by her posts. Courtney’s posts were met with intense reactions. On the one hand, many people applauded and celebrated her efforts for giving a voice to victims and for outing the men responsible for causing harm. On the other hand, there were people who dismissed her as being “crazy”, “reckless”, or “neurotic.” Included in this camp were people who targeted her small business, Full Circle Doughnuts, which was located in Baltimore’s Hampden neighborhood. Others submitted complaints to Instagram regarding her posts, which caused Courtney’s account to be disabled. Unfazed, Courtney created another Instagram account and resumed posting until that account was also disabled. Then she started posting to her business’s Instagram page, which was disabled as well. There were also the reactions of the individuals that were named in Courtney’s posts, which led to three defamation lawsuits being filed against Courtney and her business in June 2021. Because her business was named as a Defendant, Courtney was provided with defense coverage pursuant to her business insurance policy, but by the time the carrier responded to the lawsuits, all three cases were in vastly different procedural posture – one matter had a pending motion for default judgment and sanctions; another had other pending discovery issues; and the third, Joshua Harris v. Courtney Fix, et al., had not been served. By November 2021, the Harris lawsuit was at a standstill despite there already having been two motions for temporary restraining orders, which were heard and denied by the Circuit Court for Baltimore City. Joshua, a former candidate for multiple elected offices, including the 2018 Maryland House of Delegates District 40 election and the 2016 Baltimore mayoral election, labeled him as a “psychopath womanizer”, “scammer”, “narcissist and manipulator”, “abuser”, “sexual predator”, and “classic fuck boy.”[1] In response to these allegations, Courtney moved to dismiss the Harris complaint. Courtney’s motion argued that pursuant to Section 230(c)(1) of the Communications Decency Act of 1996, she could not be treated as a publisher or speaker of the screenshots she posted, and that any commentary that she authored was opinion speech protected by the First Amendment. Additionally, Courtney’s motion argued that the Harris suit was a “SLAPP suit” requiring dismissal under Maryland’s Anti-SLAPP Statute. Beginning with the Section 230 argument, “Section 230 was enacted, in part, to maintain the robust nature of Internet communication and, accordingly, to keep government interference in the medium to a minimum. In specific statutory findings, Congress recognized the Internet and interactive computer services as offering a forum for a true diversity of political discourse, unique opportunities for cultural development, and myriad avenues for intellectual activity.”[2] As a result, Section 230 creates immunity from defamation, when the defendant is 1) the provider or user of an “interactive computer service”; 2) the asserted claims treat the defendant as a publisher or speaker of that information; and 3) the challenged communication must be “information provided by another information content provider.” See 47 U.S.C. § 230(c)(1). The screenshot posts of direct messages met these criteria. It was without dispute that Courtney was a “user” of an “interactive computer service” (i.e., Instagram), and that the Harris lawsuit treated her as the publisher of the posts. Through affidavit, Courtney affirmed that the content was indeed screenshots of direct messages from other users. As such, pursuant to Section 230, Courtney could not be the publisher of these statements. As for Courtney’s own commentary, which did include labeling Harris as a “womanizer” and “sexual predator”, Courtney’s motion argued that these statements were not actionable because she was expressing loose, figurative or hyperbolic speech rather than objectively verifiable facts.[3] Of all the appellations Courtney used herself, “sexual predator” was perhaps the most salacious. While Maryland courts have not addressed this term specifically, sister-state courts have explained that this is “opinion and thus not actionable.”[4] As for the Anti-SLAPP argument, Maryland’s Anti-SLAPP statute provides that the court must dismiss lawsuits that are “1) brought in bad faith, 2) brought against a party who has made protected communications to a government body or the public on a matter within the authority of government body or on an issue of public concern, 3) materially related to the protected communications, and 4) intended to inhibit or to have inhibited the making of those protected communications. If all four criteria are satisfied, then the defendant is entitled to civil immunity if he or she acted ‘without constitutional malice’ when making the protected communications.”[5] Courtney argued that bad faith was evidenced by the relief that Harris sought: a request to chill Courtney’s speech about him entirely such that she could never speak about him again, whether in public or private, other than a forced apology; a demand for compensatory damages in excess of $75,000 and punitive damages in the amount of $1 million; and a request requiring Courtney to submit to a mental health examination in a motion for a temporary restraining order. Additionally, continued delays in service despite Courtney’s counsel offering to accept service was also argued to be an act of bad faith. Courtney argued further that all of her posts – whether third-party content (i.e., screenshots of direct messages) or her commentary on that content – were protected communications. Specifically, as already stated, Courtney’s commentary was opinion speech protected by the First Amendment. Similarly, Courtney also argued that the First Amendment protects her right to exercise editorial control over her platform and distribute others’ speech concerning issues of public concern. The Supreme Court has explained that “speech on public issues occupies the highest rung of the hierarchy of First Amendment value, and it is entitled to special protection”[6], and this rule is not “restricted to the press, being enjoyed by business corporations generally and by ordinary people engaged in unsophisticated expression as well as by professional publishers.”[7] The issues of “public concern”[8] relative to Courtney’s posts about Harris were twofold. First, Harris was a candidate for multiple elected offices, and it was argued that Courtney’s posts about him concerned his character and suitability for those offices. Second, Courtney’s speech was inextricably linked to ongoing public discussions concerning sex, consent, morality and power (e.g., the “Me Too” movement). It was clear and uncontested that Harris’ lawsuit was materially related to Courtney’s speech. The complaint also did not include a single allegation that Courtney made any statements with actual knowledge of their falsity, which could not be tested in any event.[9] The Honorable Jeffrey M. Geller heard arguments on March 30, 2022, and ruling from the bench, he granted Courtney’s motion on every basis that was raised.[10] It is believed that this is just the second time a party has prevailed under Maryland’s Anti-SLAPP Statute.[11] Joshua appealed this ruling, but his appeal was ultimately dismissed. This was a great outcome for Courtney, but it is easy to imagine that Maryland’s appellate courts would have appreciated the opportunity to address this matter. While Courtney prevailed, it was a Pyrrhic victory. The fact of the matter is that once the lawsuits were filed, her speech was chilled entirely. Courtney did make a few posts about the litigation once it was filed, but as soon as some litigants started incorporating that into their filings, she stopped altogether. There was also the damage caused by the allegations against her that painted her as a liar. She never really had an opportunity to defend against these allegations either, and even if she did have that chance, it is unclear if it would have mattered or if the court of public opinion had already judged her. Critically, Courtney’s business also suffered. She closed Full Circle Doughnuts in November 2021, just four years after it opened. Shortly after that, Courtney moved away from Baltimore. There is no doubt that the burden of the litigation was a critical factor in her decision to close her business and move. Courtney’s reality begs the question of whether Maryland’s Anti-SLAPP Statute is a paper tiger. For example, the Statute does not include an attorneys’ fee provision. The practical effect of this is that even a party eligible for relief under this Statute will still be burdened by the commencement of a SLAPP Suit. For Courtney, because her company was a co-defendant, she had no choice but to hire counsel. Additionally, the requirement to show “bad faith” does not necessarily distinguish the Statute from Rule 1-341 – Bad Faith – Unjustified Proceeding. No matter the damage the litigation caused Courtney, her strength and resolve will carry her through. She will tell her story one day, and it will be an incredible one. Until that day, the hope is that her case sets a precedent that will protect others that are as courageous as she was. [1] Mr. Harris also alleged that Courtney was responsible for posts concerning him that appeared on a website known as “outyourabusers” despite having nothing more than speculation that she was behind that content. These allegations were addressed through an affidavit from Courtney where she affirmed that she was not responsible for the website. This affidavit was not countered. [2] See Zeran v. Am. Online, Inc., 129 F.3d 327, 330 (4th Cir. 1997) (internal quotations and citations omitted). [3] See Thacker v. City of Hyattsville, 135 Md. App. 268, 313 (2000), cert. denied, 363 Md. 206 (2001) (explaining that if a statement is not provable as false or is not reasonably interpretable as stating facts, then it cannot form the basis of a defamation suit) (quoting Milkovich v. Lorain Journal Co., 497 U.S. 1, 18, 110 S.Ct. 2695, 2705 (1990)). [4] See Mogged v. Lindamood, No. 02-18-00126-CV, 2020 WL 7074390, at *16 (Tex. App. Dec. 3, 2020), review denied (June 11, 2021) (holding that the label “sexual predator” is “mere opinion”); see also Rosado v. Daily News, L.P., No. 157674/13, 2014 WL 883648, at *3 (N.Y. Sup. Ct. Jan. 31, 2014) (holding that being labeled a “sex predator” is not actionable). See also Burgoon v Delahunt, 2000 WL 1780285 (Minn. App) (reasonable person could apply “sexual predator” to inappropriate touching and offensive sexual comments); Terry v Davis Community Church. 131 Cal App 4th 1534, 1555 (2005) (inappropriate relationship with minor) [5] See MCB Woodberry Developer, LLC v. Council of Owners of Millrace Condominium, Inc., 253 Md. App. 279, 297 (2021). [6] See Snyder v. Phelps, 562 U.S. 443, 452, 131 S. Ct. 1207, 1215, 170 L.Ed. 2d 172 (2011) [7] See Hurley v. Irish-Am. Gay, Lesbian & Bisexual Grp. of Bos., 515 U.S. 557, 574, 115 S. Ct. 2338, 2347, 132 L. Ed. 2d 487 (1995). [8] In Woodberry, the Appellate Court of Maryland explained that “First Amendment jurisprudence in the context of actions for defamation … establish that a matter of ‘public concern’ means ‘fairly considered as relating to any matter of political, social, or other concern to the community’.” See 253 Md. App at 304. [9] See Batson v. Shiflett, 325 Md. 684, 728 (1992) (explaining that constitutional malice “is established by clear and convincing evidence that a statement was made ‘with knowledge that it was false or with reckless disregard of whether it was false or not.’”) (quoting New York Times Co. v. Sullivan, 376 U.S. 254, 279-80, 84 S. Ct. 710, 11 L.Ed.2d 686 (1964)). [10] The motion also argued that the complaint failed to state a claim upon which relief could be granted. [11] Shortly after this ruling, the other lawsuits pending against Courtney were resolved.
September 16, 2024
Business
Letters of Intent (LOI) – Buyer’s Exclusivity
I’ve reviewed many LOIs over the years – some we’ve prepared and others the client prepared. I’ve found that too many people view LOIs as form documents containing commercial terms. Yes, LOIs are vital documents establishing the commercial terms of a transaction. However, LOIs should not be considered “throwaway” forms in the M&A process. I think the lax attitudes relate to the non-binding nature of most terms in the LOI. Yet, there should be specific binding terms in every LOI. For a buyer, one important binding term is the exclusivity provision. Most recently, I needed to enforce this provision due to a seller’s breach. My client invested much of their time and money evaluating a transaction and documenting the same (legal, accounting, and banker time). The exclusivity provision protects a buyer from a seller “two-timing” them by not committing fully to the contemplated transaction and not negotiating in good faith. In my instance, the seller committed to another transaction during my client’s exclusivity period, leaving my client with much frustration and wasted costs. Buyers rightly demand a fair time frame to evaluate and work with a seller to consummate a transaction. Buyers invest substantial front-end costs in this regard. Fairtrade is for the seller to commit to an exclusivity period (30, 60, 90 days) to allow the parties to finalize a transaction in good faith. My client had an exclusivity period with “teeth” that allowed him to recoup these costs – and the seller did reimburse. But buyers beware. Without an adequate exclusivity provision, among other protective provisions, much time and money can be lost when a seller changes course.
September 12, 2024
Construction
Some Practical Pointers for Following the Claims Process in Your Contract Documents
When a problem arises on a project, it can cause significant impact to the schedule, costs, design, and sequence of work. The problem might also require significant technical analysis to determine and ascertain the cause and best cure or remediation. It’s therefore no surprise that contractors and subcontractors, in the midst of such situations, sometimes fail to properly focus on the contract process for formally noticing the issue and submitting it as a claim; they are too busy addressing the issue directly. Most contract documents have specific clauses that govern the claims process, and each project might have variations to the process. Regardless, there are certain fundamental steps that tend to be common, and all contractors and subcontractors should consider these steps when evaluating the problem because (a) your contract probably requires it, and (b) these steps tend to facilitate a proper submission, negotiation, and resolution of a claim. Notice the Issue The first step when encountering a problem is typically to issue a written notice of the issue. Most contracts require notice of delays, differing site conditions, change orders, or claims within a specified period of time. It is often confusing to initially determine if the issue is a claim or not because a claim usually indicates a dispute; meanwhile, notice of an issue could be as simple as submitting an RFI. It depends on the circumstances. Nevertheless, the first step is to notify the proper parties of the issue in writing. The contract documents may require that specific issues be noticed as an RFI, change order, or request for adjustment. The contract documents might require that the notice be submitted to the Architect of Record, owner’s representative, or a construction manager. Typically, when initially noticing the issue, the notice will take the form directed by the contract, and it will identify the issue at hand, with any supporting documentation to explain or present the issue. It should also identify whether additional time or costs are likely to result from the issue. Transitioning the Notice of an Issue to a Formal Claim Often, a problem on a project will start with notice of the issue, and it will progress and develop into a claim. For example, a sinkhole on a project will typically result first in an RFI, project meeting minute, or change order proposal that identifies the sinkhole and declares it to be a differing site condition or issue needing the attention of the owner or Architect of Record. Thus, the first discussion of the item is typically a notice, not a formal claim. Typically, in response to the notice of the issue, instruction or direction will be provided by the owner or Architect of Record on the work to be performed. The instruction might be in the form of a change order, change directive, or a response to an RFI. If the directed action is agreeable and provides an acceptable adjustment to the time or price for the work, then the issue is often resolved through this natural course of conduct. But if the parties disagree on the direction, lack of direction, or the proposed compensation or extension of time, then the matter has developed into a claim/dispute. The cautious and prudent contractor recognizes that if it fails to lodge and preserve its disagreement and instead simply signs a change order, it could potentially waive its rights to additional time or compensation, depending on the circumstances. Typically, the contract documents will provide a specific process for progressing the claim, and the first step of the claim process is to submit a written claim within a specified time period. Thus, in the hypothetical example at hand, once the issue has been noticed and developed into a disagreement, that is when the notice of claim should be submitted. I often see contractors that initially notice the issue but then fail to submit a formal claim once the issue has reached an impasse. The submission of the claim might be rather simple, or it might be complex. For example, the AIA A201 requires that claims be submitted to the “Initial Decision Maker,” who is typically the Architect of Record. The Architect of Record then responds to the noticed formal claim, and if the matter is still in dispute, the claim proceeds to either mediation, arbitration, or litigation. Some contracts have very extensive and complicated processes for submitting the claim, which require specific information or supporting documentation. And some contracts have extensive processes where the initial decisions on the claim, either from the owner or Architect of Record, may take several steps with decisions rendered at each step. It is important to properly present the claims to the correct persons, with the correct information, and if the claim is denied to promptly notice the appeal of the decision in conformance with the contract. Proper notice and submission of a claim is important because a failure to do so may result in a waiver of the claim. Thus, it is important to issue both a written formal notice of the issue and an additional notice of claim when the issue has not been resolved to satisfaction. Additionally, a properly developed and presented claim—containing supporting documentation and clear explanation of the issues with legal and expert analysis if necessary—is in a significantly better position for negotiated resolution. The best practice is to consult with trusted, experienced counsel that is knowledgeable on the intricacies of construction law. Offit Kurman construction attorneys are available to advise and counsel contractors, construction managers, design-builders, design professionals, subcontractors, and developers on construction contracts, risk, and project disputes.
September 12, 2024
Labor and Employment
OK at Work: Effective Strategies for Utilizing Your Attorney
On this week's OK at Work, Sarah Sawyer and Russell Berger discuss strategies for leveraging your attorney to help your business mitigate legal risk. Listen to learn more.
September 10, 2024
Intellectual Property
Pre-Emptively Filing a Trademark Application Over a Viral Catchphrase, Not Very Demure
On August 5, 2024, the life of TikTok content creator Jools Lebron changed after she posted a video that went viral. In the video, Lebron uses the phrase “very demure, very mindful, very cutesy.” That TikTok has since been viewed over 23 million times. Lebron has gone on to appear on Jimmy Kimmel Live and snagged endorsements with Zillow, Verizon and K18 hair. However, Lebron’s joy was dampened after she discovered that an individual named Jefferson A. Bates filed a trademark application with the United States Patent and Trademark Office (“USPTO”) for the wordmark “very demure .. very mindful ..” Bates’ application was filed on August 20, 2024, for advertising, marketing and promotional services related to all industries for the purpose of facilitating networking and socializing opportunities for business purposes. Since then, a few other trademark applications involving the words “demure” and “mindful” have popped up. But what even is the implication of these trademark applications to Lebron’s growing popularity and association with the catchphrase “very demure?” Can she continue to use the phrase in her videos or for the sale of merchandise? Under the Lanham Act, the standard test of trademark ownership is a priority of use in the marketplace. This means that ownership of a trademark is acquired by use in the ordinary course of trade, for example, by selling merchandise with the mark. On the other hand, trademark registration creates a legal presumption of ownership and provides notice of such ownership to the public. A trademark registration is obtained by submitting an application to the USPTO for the registration of the trademark. Such an application may be based upon actual use in federally regulated commerce. However, it is quite common to submit a trademark application as a way to reserve trademark rights prior to, but in anticipation of, actual use of the mark, as long as a declaration of bona fide intent-to-use in federally regulated commerce is submitted with the application, although an applicant under the intent-to-use category, will ultimately be required to submit a declaration of actual use before registration is granted. Bates’ trademark application alone does not reserve or guarantee his ownership of the “very demure .. very mindful ..” mark. Registering a mark involves a review by an examining attorney from the USPTO, and the process can take up to 18 months. During the review process, the examining attorney reviews the application to make sure it meets all legal requirements for registration. In fact, the USPTO may even reject the application for various legal reasons. For example, if the application conflicts with a mark that has already been registered or that is pending registration, the USPTO will issue an office action. An office action is a letter from the USPTO informing an applicant of the issues with a trademark application. An office action must be resolved before registration can be granted. After the review process, the trademark is published in the Trademark Official Gazette. At this point, any member of the public can oppose the registration of the trademark within 30 days of the publication. Alternatively, a letter of protest may be submitted with the USPTO. Even though filing a federal trademark application could provide Bates with some protection, trademark rights are automatically acquired through use of the mark in the marketplace. Thus, any protection that Bates may have received from his application may be subject to the rights of earlier users of the mark in the marketplace. However, can Lebron’s iconic use of the phrase in her TikTok videos be considered prior use in commerce? In decided cases, the Trademark Board has explained that mere advertising without rendering services under a mark could, in some circumstances, constitute use sufficient to prove priority. Every case is different, and the decision of the Trademark Board depends on the specifics at hand. Lebron can certainly continue to make videos using the viral catchphrase, but the clock may have started ticking on a race to the marketplace. Navigating the trademark application process or opposing the registration of a trademark can be confusing. If you are concerned about understanding how trademark rights can protect your business and brand name, we recommend consulting with an intellectual property attorney to discuss your options.
September 9, 2024
Mergers and Acquisitions
In M&A, a Seller’s Greatest Asset Is Their Engagement in the Deal
Every business owner understands the importance of employee engagement. Keep your team motivated and energized, and you’ll maximize profit, productivity, retention, and customer satisfaction. When the time comes to sell your business, you'll need to cultivate that same level of engagement within yourself. You’re the one in the driver’s seat; no one else can steer the process for you. If you aren’t totally invested and enthusiastic about the deal, you risk missing out on the best possible sale price or letting the transaction fall apart. Keep in mind that during a merger, acquisition, or other business transaction, a seller takes on two jobs: selling a company and running a company. Neither job is easy. Both require full engagement, attention, and leadership acumen. I like to say that during an M&A transaction, you operate your business from 9 a.m. to 5 p.m., and you sell your business from 5 p.m. to midnight! During the transaction, the business owner needs to make themselves readily available to evaluate buyers, negotiate terms, produce documents, answer questions, and actively engage in other elements of the transaction. As a seller, the owner must also sell their business — convincing the other party of their vision, of the company’s valuation, and why the organization is an excellent buy. At the same time, the owner is still involved in the day-to-day operations of the business. We’re talking about governing organization-wide initiatives, developing strategies, making decisions, communicating to internal and external stakeholders, and everything else leaders do on a daily basis. In addition to these full-time responsibilities, the owner is typically hard at work on the transition — readying employees for the changes ahead, locking down key contracts, keeping vendors and business partners updated, and so on. If that sounds like a lot to handle, it’s because it is. It’s like undergoing an extended federal investigation while pushing your business as aggressively as a used car salesman would. Sellers need to prepare financially, emotionally, and psychologically for the difficult road ahead. They need to figure out their goals and objectives early and stick to them resolutely. Fortunately, sellers don’t need to manage it all alone. Business attorneys, investment bankers, valuation professionals, and other M&A advisors can provide much-needed support and sanity checks. That said, we can’t get the deal done without your direction and continual involvement. Again, the operative term is engagement. I’ve worked with clients who lacked engagement and damaged their deals as a result. You need to consider decisions, read every document, and follow through all the way. If your attorney asks you for your business contracts, they don’t want to hear “here’s most of them.” You need to provide all of them, not 80%, not 90%. “Good enough” doesn’t cut it. The buyer who’s going to pay you millions of dollars isn’t going to stand for “good enough” or “most of what I could find;” they need everything, or they need to know what you can’t find and why. On the flip side, there’s such a thing as getting too engaged in the transaction. Micromanaging is a form of sabotage. Trust the members of your team to do their jobs. Insisting that you need something done by Friday has no impact on your attorney’s ability to do it. Deadlines should be based in reality. Moreover, the attorney may have a good reason for taking their time. Sometimes, it’s simply smarter to wait and see how things play out so you can make better-informed decisions. Remember that a business transaction is a dance, a push-and-pull between buyer and seller. If the only reason you’re rushing through it is to check a box, you could be losing perspective on the deal and giving up your leverage. Any effective arrangement between a business owner and an M&A advisor is a partnership. While healthy discussion is good, each partner fundamentally needs to do their part and stay in their lane. A lawyer shouldn’t be asked to provide guidance on net-working capital—that’s an investment banker’s job. By the same token, the banker’s input on legal matters shouldn’t supersede the attorney’s recommendations. And as the business owner, you’re ultimately the one calling the shots. It’s your business, your transaction, your future. Grab hold of the wheel and put your foot on the pedal. Originally posted 10/25/19, no content changes.
September 5, 2024
Family Law
Navigating the Division of Private Investments in a New Jersey Divorce: A Simplified Guide
Divorce can be a complex process, especially when dividing financial assets. The process can seem even more daunting for those who own private investments, such as shares in a closely held business or investment partnerships. If you're facing a divorce in New Jersey and have private investments, understanding how these assets are divided can help you navigate this challenging time with more confidently. Here's a straightforward guide to help you through the process. What Are Private Investments? Private investments are assets that are not traded on public exchanges. They can include: Shares in Private Companies: Owning stock in a company that is not publicly traded, is considered a private investment. Partnership Interests: Investments in business partnerships or joint ventures. Real Estate Ventures: Investments in real estate projects that are not part of a publicly traded real estate investment trust (REIT). How Are Private Investments Divided in a New Jersey Divorce? In New Jersey, divorce laws require that marital assets be divided fairly, which is known as "equitable distribution." This doesn’t always mean a 50/50 split but rather a fair division based on various factors. Here's a step-by-step look at how private investments are typically handled: Identify the Investments: The first step is to identify all private investments owned by either spouse. This involves compiling detailed information about each investment, including its value, ownership percentages, and any relevant agreements or documentation. Determine the Value: Valuing private investments can be more complicated than valuing publicly traded stocks. Since private investments are not publicly traded, they lack a clear market value. You might need to hire financial experts or appraisers specializing in valuing such assets. They will consider factors like the company's financial statements, revenue, profits, and market conditions to estimate a fair value. Assess the Marital Portion: Only the portion of the private investment acquired during the marriage is subject to division. If the investment was made before the marriage, its pre-marital value is generally considered separate property. However, any increase in value during the marriage is typically divided if the asset requires the active efforts of either spouse. This can be particularly complex if the investment has appreciated significantly over time. Consider the Type of Investment: Different types of private investments might require different approaches:Business Interests: If one spouse owns a business, determining its value and dividing ownership can be particularly intricate. The court may consider whether the business was started before or during the marriage and how much of the business’s value is attributable to the marital period. Partnerships: If you are a partner in a business, your share might be divided based on the partnership agreement or subscription agreement, which might outline how to handle such situations. Negotiate and Reach an Agreement: Once the value of private investments is determined, you and your spouse can negotiate how to divide these assets. This might involve selling the investment and splitting the proceeds, or one spouse might buy out the other’s share. Another option to consider may be a transfer of shares directly to your spouse (if permitted) or an offset against another marital asset. Negotiations should be guided by fairness and consider each party’s financial and non-financial contributions to the marital enterprise. Legal and Tax Considerations: Dividing private investments can have tax implications. It’s important to consult with tax professionals to understand the potential tax consequences of transferring ownership or selling investments. Legal advice can also ensure that all agreements comply with New Jersey divorce laws and are properly documented. Asset Protection and Estate Planning Considerations: It is also extremely important to consider how any division may impact your asset protection plan and/or your estate planning objectives. Seek Professional Guidance Given the complexity of valuing and dividing private investments, it’s advisable to work with professionals who have a deep understanding of these areas. Financial advisors, business valuators, and seasoned matrimonial attorneys can offer valuable guidance and help ensure that your interests are protected. Conclusion Dividing private investments during a divorce in New Jersey involves a careful assessment of their value, understanding which portions are subject to division, and navigating the complexities of asset division. While the process can be intricate, you can work towards a fair and equitable resolution with the right support and a clear understanding of your assets. If you’re facing a divorce and are unsure how to handle private investments, we strongly recommend consulting with a knowledgeable family law attorney licensed in your jurisdiction, as every case is unique and fact-sensitive. With the right expertise, you can manage this challenging aspect of divorce and move forward with greater clarity and confidence. If you would like to discuss your matter or have any questions, please contact Rawan Hmoud, Esq. by email at rhmoud@offitkurman.com or by phone at D: 347-589-8528. In addition to her more than 17 years of experience in family law, Ms. Hmoud is the Practice Group Leader of the Family Law North group at Offit Kurman, PA. She works with a team of matrimonial attorneys covering New Jersey, New York, Pennsylvania, and our Asset Protection and Estates and Trusts teams.
September 5, 2024
Estates and Trusts
Writing Your Own Epilogue: How Estate Planning Can Shape Your Legacy
William Shakespeare said, “A good play needs no epilogue.” When a story is compellingly told, in other words, there is no need for commentary after the curtain falls. Like a play that is well written, a life that is well lived speaks for itself. But living well includes knowing that you have planned for what happens after you are gone. This foresight includes how easily your estate will be passed down to the people you care about. Have you written a will that names someone to settle your estate? If something were to happen to you, do you know who would receive your assets? If you have children, have you appointed a guardian to look after them and a trustee to manage their inheritance? If not, the commentary on your life could well include tales of confused intentions and mismanaged assets, of hurt feelings and squandered wealth. Fortunately, all it takes is a phone call to an estates and trusts attorney to make your epilogue your own. With your guidance, the attorney can prepare your will, durable power of attorney, and advance medical directive. These essential documents name a cast of characters who can take charge if you should die or become incapacitated. Your Last Will and Testament names a “personal representative,” or executor, who will administer your estate. Dying without a will, or “intestate,” would require someone to step into this role. The person they select could be an estranged sibling or disapproving parent, who will then have the legal authority to go through your home and distribute your possessions and other assets to your heirs. By preparing a will, you ensure that the right person is in charge of settling your affairs. Writing a will also enables you to leave your assets to the people you select. Shakespeare himself did this when he bequeathed his “second-best bed” to his wife. In addition to your spouse or partner and any children, you might consider including a charitable organization, such as an alma mater or house of worship, among your beneficiaries. Working with an attorney is an opportunity to coordinate assets like life insurance and retirement accounts with the provisions in your will. These “non-probate” assets are not controlled by your will and instead transfer directly to the named beneficiary upon your death. It’s essential, then, that these beneficiary designations work in tandem your will and are not at odds with it. Even a well-lived life can include periods of struggle. If you ever become incapacitated, a durable power of attorney can name someone you trust to manage your finances. The duties of your “attorney in fact,” as the person is called, could include paying your bills, filing your taxes, or even selling your house in order to move you into assisted living. An advance medical directive is like a power of attorney but relates to your health care. It enables you to state your wishes for managing an end-of-life illness and to name a trusted individual who will ensure that your wishes are carried out. If you lose capacity and don’t have an advance directive, the authority to make medical decisions on your behalf will fall to your next of kin. Surprisingly, this could be several people, like a group of siblings, who could have very different ideas about how to manage your care. By preparing an advance directive, you can instead name someone with your best interests at heart to take on this essential role. Of all the benefits of having an estate plan, perhaps the greatest is the reassurance of knowing that the actors you have chosen are prepared to step into their roles when the need arises. With that in mind, when is the best time to have your estate-planning documents drawn up? As Shakespeare said in the Merry Wives of Windsor, “Better three hours too soon than a minute too late.” Lee Carpenter is a Principal at the law firm of Offit Kurman, P.A., and can be reached at (410) 209-6426 or lee.carpenter@offitkurman.com. This article is intended to provide general information and should not be construed as legal advice.
September 3, 2024
Commercial Litigation
Gut Punch...No Regrets
Sometimes a “win” feels like, well, . . . not a win. Sometimes a “win” comes at such a significant cost that the diminished value of the victory forces one to question whether it was a win at all. The Battle of Bunker Hill is a notorious “pyrrhic victory” during which the British troops occupying Boston eventually overran the vastly outnumbered rag-tag assemblage of defending militiamen but not without suffering substantially greater casualties than expected. The battle, nominally a British victory, proved to be an encounter the British would much rather forget than tout as a win. Similarly, a prize fighter’s successful defense of his boxing title by technical knockout leaving him perceptively weak and vulnerable to challengers, perhaps even severely injured, might leave him questioning whether, in hindsight, the public beating taken in the ring was truly a “win” for which it was worth fighting. I recently experienced an unqualified “win” for a client followed by a sucker punch I didn’t see coming . . . a “gut punch” unexpectedly bringing me to my knees and requiring the equivalent of a “standing 8-count” to shake off and get my head right. While it didn’t come with bloodshed or a championship belt, it did come with loss of life and a serious cause for pause. The Set-Up I’d been contacted and engaged by a non-familial attorney-in-fact on behalf of a lovely 90-year-old, bed-ridden, “stage 4” diagnosed, short-timer. For these purposes, I’ll call her “Joy” -- because she certainly was! Joy was a pistol. Although end-stage, unable to leave her bed, and receiving hospice care when I met her, Joy was feisty. I certainly had no doubts about her mental capacity. She knew what she wanted and had no issue telling you! What she didn’t want was a guardian or conservator appointed for her – least of all her 30-year estranged family member (“Pat”) who, from thousands of miles away, had only begrudgingly made the trip to see Joy and, even then, chose to disrespect her by removing and requisitioning Joy’s dining room chandelier before bothering to say “hello!” Soon thereafter Pat had returned home and engaged local Virginia counsel to assist Pat in securing complete control over Joy as both guardian and conservator. Suit was filed and a Guardian ad litem (GAL) already appointed by the time I got the initial call. Joy was having none of it and was non-plussed. For her part, Joy, with the help of her attorney-in-fact, had engaged reputable counsel to redo her estate plan writing Pat (and Pat’s equally estranged sibling, who couldn’t be bothered to pay respects) completely out of her will. I know what you’re thinking at this point – was the non-family member taking advantage of Joy and now the object of all of her bounty? Nope. Joy kept it in the family but skipped a generation leaving everything she owned to the grandchildren she’d never been allowed to know. In what turned out to be her final days, Joy wanted nothing more to connect with and meet the now adult grandkids she’d never met, but my requests through counsel on her behalf went unanswered. The “Win” Having personally met with and preliminarily concluded Pat needed no guarding or conservation, I was easily able to convince Pat’s counsel that there was no need to rush to judgment and coordinate a cooperative approach to allowing an independent assessment by the court-appointed GAL – who, by the way, was equally easily convinced of Pat’s mental acuity and just as willing to minimize her involvement so as to avoid unnecessarily running up legal fees. I convinced Joy to allow me to share her new estate plan documents so Pat’s counsel could see and share with Pat that mom was not giving it all away to who knows who and clearly had a plan – a plan reflective of the non-existent relationship Joy had had with her children . . . a plan without Pat. With no basis for denying Joy her freedoms of choice, Pat’s counsel pursued a voluntary dismissal. With everyone doing the “right thing,” a lot of money and heartache was spared and I had successfully defended Joy’s interests without so much as having filed a single pleading or attended a single hearing. No formal discovery was needed; judicial economy was maximized. Joy was happy. Joy’s attorney-in-fact was happy. I was happy. Joy was at peace. Joy passed several days later. The “Gut Punch” With Joy’s passing, there was still work to be done, of course. In keeping with Joy’s wishes, Joy’s attorney-in-fact, now Executor under Joy’s will, made arrangements for the final disposition of Joy’s remains with no public service or ceremony. I reviewed the published eulogy with interest and a strange deference, considering I’d only twice met Joy in person and only known Joy for a few weeks. Count this one as a “win,” I thought. Hold this out as a case study on how every case should go, I concluded. I’d even begun composing the article in my head. That’s when I got the call. Joy’s other long-lost offspring had been given my number. It seems there’d been no love lost between Joy and himself over the years and he’d deferred to Pat to address mom’s final illness. With news of Joy’s death still fresh, he was calling to let me know that Pat had just taken her own life. There it was – his own self-described “1-2 punch combination” which had apparently left him feeling weak in the knees, was the punch to the gut I didn’t see coming. I sat dazed and speechless as he shared the unsolicited gruesome reality of Pat’s disposition as his story morphed into the impact on Pat’s situation on the grandkids – remember the grandkids? He transitioned effortlessly again to talk of wanting to be “fair to the kids” (appearing now to be indirectly referencing Joy’s estate and believing, based on apparently nothing in particular, that Pat’s kids would somehow be short-shrifted with Pat’s untimely demise). In that moment, I caught my breath and lifted myself off the mat with the revelation that he had been written out of the will and the grandkids were to receive everything. “So that’s it, then, huh.” “Yes.” Conversation over. After an awkward silence, he hung up. The Aftermath I’m not sure which had hit harder, news of Pat having taken her own life or the impact of her doing so on the sibling and children she’d left behind. I suppose that in my line of work I ought to be grateful I’ve not faced more such situations. Quite candidly, I’ll concede I’m not sure this would still be my line of work! There was no championship belt for my performance, nor was one deserved. Still, a win’s a win, right? I take solace in knowing that I served my client’s interests cost-effectively, efficiently, and professionally. I successfully protected her legal rights and helped her die with dignity and at peace. The tragic aftermath left in her wake was not of my doing, but rather the apparent consequences of lifetimes of regret about which I know little more than hinted at here and with which I had no involvement. I think it’s important to recognize that our wins and losses as litigators are life-altering events for our clients and their “adversaries” (aka family members, in my specific line of work). I think the struggle comes from the juxtaposed need to be independent-thinking, dispassionate, third-party trained professionals and the inherent value in appreciating the emotional toll and impact the circumstances have on not only our clients but also those caught up in outwardly expanding ripples left in litigation’s wake. My takeaways? If nothing else, I learned I could take a punch. I still what I do . . . for now, at least. Personally, I suggest calling your mom; hug your kids before it’s too late. Professionally, in a personal services context, caring still matters. It’s important to remember that people generally don’t care what you know unless they know that you care, but if they don’t care that you care, you don’t need them.
August 30, 2024
Business
I’m a Potential M&A Buyer; Should I Focus on Buying Stocks (Equities) or Buying Assets?
When an M&A buyer is looking into a target company, they’re faced with the decision whether to buy stocks (the equities) or acquire assets. But what’s the difference? A stock purchase involves the purchase of the selling company’s stock only. Simply put: the buyer acquires all of the outstanding stock of the target company directly from the target company’s stockholders, including the assets, rights, and liabilities. The buyer then steps in the shoes of the selling stockholders (switches places). Stock purchases are generally straightforward transactions. Both parties sign a Stock Purchase Agreement (a sales agreement used to transfer and assign ownership in a corporation) and any other related documents that outline the terms of the deal, and the sellers then transfer their stock to the buyer. It seems simple enough, right? For the most part. There are risks, such as unknown or undisclosed liabilities of the target company. Again, when you purchase the stock, you become the stockholder; thus, nothing at the company level changes (save perhaps change of control issues). Operations remain intact as do all risks and liabilities. In addition, stock sales generally have favorable tax treatment for sellers. But what if you don’t want to buy everything and/or you want to limit your risk exposure? You might then be more interested in an asset purchase. An asset purchase is an agreement between a buyer and seller to acquire a company’s assets. This means: the buyer only acquires the assets, rights, and liabilities it identifies and agrees to acquire and assume. Assets can be both tangible, such as offices and equipment, and intangible, such an intellectual property and corporate name. Asset purchases are a good option if you’re looking for more flexibility and don’t want to pay for unwanted assets. Further to that point, it means less risk of assuming unknown or undisclosed liabilities. Asset purchase transactions are generally more favorable to a buyer and at times less favorable to a seller. Some buyers may be deterred by asset acquisitions because they’re more complex than stock purchases. The buyer has to spend time identifying the assets it wishes to acquire/assume. By doing so, the buyer may potentially overlook an important asset required to run the business it’s acquiring. Asset purchases have more formalities and documents since they require a separate transfer for each of the identified assets and liabilities of the target company. They may also require more third-party consent since the contracts assumed by the buyer are likely to contain anti-assignment clauses (which prevents either party the ability to assign tasks to a third party without the agreement of the non-assigning party). Whether you’re considering a stock purchase or an asset purchase, it’s always best to discuss it with an M&A attorney first. Selecting the form of the transaction is a key consideration when targeting the purchase of a business. There are many variables to consider as to why a transaction is set as a stock purchase versus an asset purchase. Originally posted on 9/9/2020, no content changes.
August 29, 2024
Family Law
New Jersey vs. California: A Divorce Law Comparison Through JLo and Ben's Separation
Recent media coverage has been swirling with rumors surrounding Jennifer Lopez (JLo) and Ben Affleck’s separation. On August 20, 2024, it was reported that JLo filed for divorce in California, where they both primarily reside, after just two years of marriage. While the separation was not unexpected, it came as a surprise that JLo and Ben did not have a prenuptial agreement prior to walking down the aisle in July 2022. Without a prenuptial agreement, the earnings, profits, and assets acquired during the marriage are subject to division. In determining how marital property should be divided, courts will consider a variety of factors, which can differ depending on the state where the divorce is filed. While their divorce is being filed in California, exploring how New Jersey would handle a similar situation offers an interesting perspective on the differences in divorce law across states. Unlike California, which is a community property state where marital assets are generally divided 50/50, New Jersey follows an "equitable distribution" model, meaning that marital property is divided in a manner deemed fair based on the circumstances — not necessarily equally. Equitable Distribution in New Jersey If this matter were pending in New Jersey, the allocation of marital assets between spouses would be governed by N.J.S.A. 2A:34-23.1, regardless of ownership. Unlike California, New Jersey is an equitable distribution state, meaning that marital property is not necessarily divided equally but, in a manner, deemed fair based on the circumstances. In conducting an equitable distribution analysis, New Jersey courts follow a three-step process: Identification: The court first identifies the specific property and liabilities of each spouse that are subject to distribution. Valuation: The court then determines the value of this property. Distribution: Finally, the court analyzes and decides how to distribute the property fairly. At Step 3, the court has broad discretion to determine the most equitable way to distribute marital assets, guided by the factors outlined in N.J.S.A. 2A:34-23.1. Among the 16 factors considered, the most important include: The length of the marriage. The economic circumstances of both parties. Each party’s financial and non-financial contributions to the marriage. Additional factors such as the age and health of both parties, the standard of living established during the marriage, and the tax consequences of proposed distributions. Considerations for High-Profile Divorces For high-profile clients like JLo and Ben, a New Jersey court might consider a variety of assets when determining the distribution of their assets and liabilities. This list includes, but is not limited to: The earnings from films in which either party starred or was involved as a director/producer during the marriage. For Ben, this includes films such as Air and Hypnotic, This Is Me… Now: A Love Story, Small Things Like These, Kiss The Future, The Greatest Love Story Never Told, The Instigators, and The Accountant 2, while JLo’s films include Shotgun Wedding, The Mother, This Is Me… Now: A Love Story, and Atlas[1]. The court would also take into account their Beverly Hills home, Promotional contracts, streaming dividends, and royalties earned during the marriage. In certain circumstances, the appreciation of separate property may be considered a marital asset subject to equitable distribution. However, given the short duration of JLo and Ben’s marriage, it is uncertain whether a New Jersey court would divide any increase in the value of their separate property or premarital assets. Typically, prenuptial agreements address this issue directly and provide protection against such outcomes. How New Jersey Differs from Other States It is important to note that each state’s approach to divorce can differ significantly. For instance, New York, like New Jersey, is an equitable distribution state but has its own unique guidelines and considerations that could lead to different outcomes. These variations emphasize the importance of understanding the nuances of divorce law in your jurisdiction. Protect Your Interests: Consult with a Family Law Attorney High-profile cases like this often involve complex financial portfolios and unique challenges that require careful planning and attention. If you’re concerned about protecting your assets or understanding how your property might be divided in a divorce, we strongly recommend consulting with a knowledgeable family law attorney licensed in your jurisdiction, as every case is unique and fact-specific. If you would like to discuss your matter or have any questions, please contact us by email at emily.ingall@offitkurman.com and rhmoud@offitkurman.com or by phone at 929-476-0046 or 347-589-8528. [1] This list may not be all-encompassing and may not include unreleased projects.
August 28, 2024
Business
From the Field to the M&A Negotiating Table, Every Successful Team Shares The Same Dynamics
They say there’s no “I” in “team.” Tellingly, for the parties in merger or acquisition, it’s also impossible to spell “team” without an “M” or an “A.” But I’d like to introduce you to a different set of letters. Even though you can’t find them in the word itself, every team should contain three “Cs”: cohesion, collaboration, and culture. Over the course of my career as a business attorney and advisor, I’ve seen many transactions succeed—and witnessed many more fall apart. Every deal that’s gone through could not have happened if not for a cohesive, collaborative, culturally connected team. Speaking as a sports fan, I could say the same about a squad like the Ravens, the Bulls, or the Bruins. Whether we’re talking about a sports team or a corporate team, the Three Cs are paramount for optimal results: Cohesion is the team’s capacity to stick together, through the good times and the difficult moments. It’s the fundamental element every group needs to take on risk and uncertainty, survive failure, and doggedly pursue its goal. Without cohesion, there is no team. Collaboration is how the team works together as a unit, maximizing each team member’s strengths to become something more than the sum of their individual abilities. Collaboration ensures the team is operating at its full capacity. It’s how team members keep each other accountable, engaged, and in the game—be it a real game or a metaphorical one. Culture is everything the team cares about and stands for—the values, principles, beliefs, assumptions, and personalities that make the team unique. A team’s culture determines how and why the team does what it does. Culture eclipses everything else; it’s how Joe Namath led the Jets to triumph over the Colts, the so-called “greatest football team in history,” in Super Bowl III. The Three Cs are essential ingredients of all successful teams, but they aren’t the only qualities that matter. Many teams with extraordinary M&A records have been together for a long time—sometimes years. Time not only imparts experience, but builds team confidence and predictability. Diversity matters as well. An M&A advisory team should be comprised of individuals from different disciplines, such as leadership, accounting, law, and investments. Many successful sellers and buyers build teams from their networks: they tap their closest colleagues and associates for support; hire attorneys, bankers, and other M&A consultants; and then bring in trusted advisors from their organizations’ boards of directors, executive suits, and finance departments. Finally, even the smartest, most experienced and diverse teams need to watch out for dysfunction. Everyone on the team should share a single goal: deal consummation. Internal dysfunction can impact everything from timing to cost structures. With that in mind, effective M&A teams work on resolving conflicts early, build open lines of communication, and save their competitive energy for the playing field—or negotiating table. Originally posted on 1/25/2019, no content changes.
August 22, 2024
FTC Non-Compete Rule
Texas Court Blocks Enforcement of FTC Non-Compete Ban
The Federal Trade Commission (FTC) will not be able to enforce its proposed rule banning non-competes per the latest ruling from a federal district court in Texas. What does this mean for businesses? For now, it’s business as usual. Companies can continue using non-compete agreements with their employees, provided they comply with applicable state and local laws. Best practices regarding non-compete agreements Companies should still exercise caution, however. The FTC may appeal the Ryan decision or there could be other legal or regulatory changes that could impact the enforceability of non-compete agreements. Future legislation or regulatory reform around the use of employee non-competes may be especially likely, given the recent and widely publicized scrutiny. Employers should review their existing non-compete agreements with employment counsel to ensure they comply with current laws and regulations in the states in which they operate and have employees. Attorneys experienced with non-competes and other restrictive covenants can provide you with valuable insights and alternative strategies to protect your interests. Being prepared to adapt your policies in response to any changes will help safeguard your business. Background Ryan LLC v. Federal Trade Commission, 3:24-cv-00986, (N.D. Tex.) was one of several lawsuits filed to challenge the FTC’s proposed rule banning non-competes. This rule, set to take effect September 4, 2024, would have banned the use of future non-compete agreements and nullified most existing ones. In a victory for employers, U.S. District Judge Ada Brown for the Northern District of Texas issued a ruling in the Ryan case on August 20, 2024, blocking the FTC from enforcing its proposed non-compete rule.
August 21, 2024
Mergers and Acquisitions
Four Reasons Sellers Have a Natural Disadvantage in M&A Transactions
“The roulette table pays nobody except him that keeps it. Nevertheless, a passion for gaming is common, though a passion for keeping roulette tables is unknown.” So wrote George Bernard Shaw, the Irish playwright and London School of Economics co-founder, over a century ago. Were Shaw alive today, he would make a shrewd mergers and acquisitions (M&A) advisor. In an M&A transaction, the keeper of the roulette table is the buyer: the organization, group, or individual interested in purchasing a company. Sellers are at an inherent disadvantage because they’re engaging on the other party’s terms. They’re sitting across from someone who sets the rules, who holds the chips, who has bet—and won—numerous times before. To attempt to outsmart or overpower the buyer is to play against the house: you’re almost certain to lose—and wind up in a worse position than where you started. If this sounds dramatic, that’s because it is. While no deal is a pure gamble, there’s always some level of risk and uncertainty involved. And if a seller doesn’t adequately prepare and check their expectations, they could be putting millions of dollars and countless hours on the line. Consider some of the basic advantages buyers have over sellers during an M&A transaction: 1. The Buyer Tends to Have More Resources A business owner may have a hot commodity on the market, but a buyer has money. Guess who has better leverage? Moreover, capital is just one of the acquiring party’s many resources. Buyers tend to work with specialized teams of investors, bankers, accountants, and valuation professionals. Sellers may lack the means or knowledge to access outside expertise and build equally formidable rosters. 2. The Buyer Brings More Knowledge and Experience Most business owners will only sell a company once, if ever, over the course of their lifetimes. Many buyers, by contrast, make deals for a living. There’s a good chance your prospective buyer has negotiated dozens of transactions before. They probably understand M&A activity in your industry better than you do. They may have grounds to challenge your assumptions about your company’s value and can back up their assertions with detailed data. 3. The Buyer Has More Time and Energy to Spend Sellers have a fundamental limitation in terms of capacity—they need to balance the pressures and demands of deal-making with ongoing business operations. Again, for buyers, the transaction is the job. If the transaction is already underway, they can dedicate their full time and attention to it. As a result, they’re less likely than sellers to experience burnout and better equipped to vigorously defend their position as negotiations drag on. 4. The Buyer Is More Prepared to Walk Away Business owners are deeply attached to the companies they’ve built. When a deal starts to materialize, it represents the culmination of years of hard work and usually follows a series of serious, passionate conversations and tough decisions. But while a seller’s emotional investment in the company—and the transaction—is only natural, the buyer is wise to keep some distance. Think about the different meanings a closed deal has for either party: for the seller, it’s the next stage of life; for the buyer, it’s another opportunity that may or may not work out. Originally posted 9/12/2019, no content changes.
August 15, 2024
Family Law
Back to School! Now What?
As summer comes to a close and children prepare to return to school, many divorced or separated parents find themselves facing the need to adjust their custody schedules. The shift from the more relaxed, flexible summer arrangements to the structured routine of the school year can be challenging. Understanding how custody schedules can change during this transition and planning accordingly can help ensure a smooth adjustment for parents and children. What is the best way to address these changes? Below are a few tips to facilitate a smooth transition back into the school year. Communicate Early and Often: Open communication between parents is not just important; it’s essential. Discuss potential custody changes well before the school year begins. Regular check-ins can help address any concerns and ensure both parents are on the same page, providing a sense of reassurance and keeping everyone well-informed. Create a Detailed Plan: A detailed custody plan can prevent misunderstandings and conflicts. The plan should outline the daily schedule, transportation arrangements, responsibilities for extracurricular activities, and any other relevant details. Be Flexible and Cooperative: Flexibility and cooperation are not just helpful but key to successful co-parenting. Be willing to adjust as needed and consider each other's work schedules, commitments, and the child's needs. This approach empowers you to control the situation and work together for the best outcome for your child. Prioritize the Child's Best Interests: Always keep the child's best interests at the forefront of any decisions. Stability, consistency, and a supportive environment are crucial for the child's well-being and academic success. This responsibility and care for your child's needs should guide all your decisions. Seek Mediation or Legal Assistance if Necessary: If parents cannot agree on custody schedule changes, seeking mediation or legal assistance may be necessary. A mediator or family law attorney can help facilitate discussions and find a resolution for everyone involved. Adjusting custody schedules when children return to school can be a complex process. Still, parents can navigate this transition smoothly with careful planning, open communication, and a focus on the child's best interests. By working together and being flexible, parents can ensure their children have the stability and support they need to thrive academically and emotionally. If you need assistance modifying a custody schedule, consulting with an experienced family law attorney can provide valuable guidance and help protect your rights as a parent.
August 15, 2024
Family Law
Traveling Abroad with Children During a Divorce: What You Need to Know
Understanding the legal requirements is one of the first and most critical steps in planning an international trip with your children during a divorce. Custody and Visitation Agreements: Review your custody and visitation agreements carefully. These documents will outline the rights of both parents regarding the children's travel. If your agreement restricts travel or requires the other parent's consent, you must follow these terms to avoid legal complications. Obtaining Consent: In most cases, you'll need the other parent's consent to travel abroad with your children. This consent should be in writing and include trip details, such as dates, destinations, and contact information. Some countries require this written consent when entering or leaving the country. Court Orders: If you cannot obtain the other parent's consent, you may need to seek a court order allowing you to travel. The court will consider whether the trip is in the children's best interest and whether it disrupts the other parent's visitation rights. Passports: Ensure that your children's passports are up to date. Both parents must usually sign a child's passport application unless one parent has sole legal custody. If your ex-spouse refuses to cooperate, you may need to go to court to obtain a passport. The Hague Convention: If you're traveling to a country that is a signatory to the Hague Convention on International Child Abduction, be aware of the legal protections this treaty provides. It helps prevent one parent from wrongfully retaining a child in a foreign country. Be very cautious if a parent wants to travel to a country that is not a signatory to the Hague Convention on International Child Abduction. Once the legal matters are settled, focus on planning the logistics of your trip. Itinerary and Contact Information: Share your complete travel itinerary, including flight information, accommodation details, and contact numbers, with the other parent. This transparency helps build trust and ensures both parents know the children's whereabouts. Emergency Contacts: Provide the other parent with emergency contact information, including local contacts in the destination country, the nearest U.S. embassy or consulate, and the children's healthcare providers. Healthcare Considerations: Ensure you have all necessary medical documents, including prescriptions, insurance information, and vaccination records. It's wise to have travel insurance that covers your children for the trip. Traveling during a divorce can sometimes lead to conflicts, especially if communication between you and your ex-spouse is strained. Conflict Resolution: Approach any disputes calmly and rationally. If a disagreement arises over travel plans, consider mediation to resolve the issue without escalating tensions. Respect Boundaries: Respect the other parent's boundaries and rights. Make sure to discuss them with your ex-spouse before making any last-minute changes to the travel itinerary. Legal Recourse: If conflicts cannot be resolved amicably, it may be necessary to seek legal advice or intervention. Always prioritize the best interests of your children in any legal action. Traveling abroad with your children during a divorce requires careful planning and consideration. Adhering to legal requirements, addressing your children's emotional needs, and maintaining open communication with the other parent can ensure the trip is a positive experience for everyone involved.
August 13, 2024
Family Law
How to Value a Startup Business in a Divorce
Startups differ from mature businesses in that they are typically in the early stages of development, often with unpredictable revenue streams, high growth potential, and significant risk. This makes traditional valuation methods, which rely heavily on historical financial data, less effective. There are key aspects to consider when valuing a startup, which includes: Stage of Development: Is the startup in its seed stage, early stage, or growth stage? Revenue and Earnings: Startups may have little to no revenue or earnings, which affects the valuation approach. Business Model: Understanding the business model is critical as it determines the potential for future profitability. There are several methods to value a startup in a divorce, each with its own set of assumptions and applicability: Income Approach (Discounted Cash Flow—DCF): This approach involves projecting the startup's future cash flows and discounting them to their present value. However, due to startups' speculative nature, this method can be challenging and may require adjustments to account for higher risks. Market Approach: This method involves comparing the startup to similar businesses that have been recently sold. In the context of a startup, this could mean looking at other startups in the same industry and stage of development. However, finding comparable companies can be difficult, and the market approach often requires significant adjustments. Asset-Based Approach: This approach focuses on the value of the startup's assets, including intellectual property, equipment, and other tangible or intangible assets. For startups, this might undervalue the business, especially if the company's value is tied more to future potential than current assets. Venture Capital Method: Investors often use this method to value startups. It involves estimating the startup's exit value (the amount for which the startup could be sold in the future) and working backward to determine the present value. This method can be helpful but relies heavily on assumptions about future performance. Cost to Duplicate: This method calculates the cost of reviving the startup from scratch. While this may not reflect the market value, it can provide a baseline for valuation. When valuing a startup in a divorce, several personal and business factors must be considered: Ownership Structure: If the startup has multiple co-founders, the ownership percentage of the spouse involved in the divorce needs to be clearly defined. Role of the Spouse: The spouse's involvement in the startup (whether as a co-founder, employee, or passive investor) can affect the valuation and how the business is treated in the divorce. Legal Agreements: Any pre-existing agreements, such as prenuptial or postnuptial, can influence how the startup is valued and divided. Impact on Business Operations: The divorce may affect the startup's operations, especially if both spouses are involved. The potential implications for business continuity should be considered in the valuation. Given the complexities involved in valuing a startup, hiring a professional business valuator with experience in startups and divorce cases is often advisable. A qualified expert can provide a more accurate and unbiased valuation, which ensures a fair settlement. Once the startup's value has been determined, the next step is negotiating how that value will be divided. This can involve various options, such as: One spouse buys out the other's interest in the business. Selling the business and dividing the proceeds. Offsetting the value of the startup with other marital assets. Valuing a startup in a divorce is a complex process that requires a thorough understanding of the business and the personal dynamics involved. Each valuation method has pros and cons, and the most appropriate approach depends on the specific circumstances of the startup and the divorce. Engaging a professional valuator and carefully considering all factors can help ensure the process is fair and equitable for both parties. Ultimately, the goal is to achieve a valuation that reflects the startup's true worth, considering the unique challenges it presents in the context of a divorce.
August 13, 2024
Labor and Employment
Navigating the FTC’s New Non-Compete Rule: Steps to Prepare by September 4, 2024
On April 23, 2024, the Federal Trade Commission (FTC) approved a new rule (FTC Rule) that invalidates most existing non-compete agreements for employees at for-profit businesses, except for those agreements for "senior executives" signed before September 4, 2024 (Effective Date). This FTC Rule fundamentally alters the longstanding practice of using non-compete clauses to safeguard an employer's interests. Overview of the FTC’s New Non-Compete Rule and Its Implications Under the new rule, non-compete agreements will only remain enforceable for senior executives—defined as those earning more than $151,164 annually and holding significant policy-making roles, such as president or CEO—and will remain enforceable if signed before the Effective Date. After September 4, 2024, employers will be prohibited from imposing non-compete agreements on new hires, even if they are senior executives. Employers are also required to inform both current and former employees bound by non-compete agreements that these agreements will not be enforced. The FTC has provided model language for this notice, available on its website in multiple languages. Employers should use this notice carefully and avoid issuing it to senior executives who the FTC Rule does not impact. Key points to consider: The term “worker” is broadly defined and includes employees, independent contractors, interns, volunteers, apprentices, and even sole proprietors. The FTC’s jurisdiction generally does not cover non-profit organizations, banks, savings and loan institutions, federal credit unions, common carriers, and air carriers, so the rule may not apply to these sectors. The rule does not address non-compete agreements that prevent employees from soliciting customers or other employees unless these agreements are overly broad and interfere with a worker’s ability to seek or accept new employment. Agreements designed to protect trade secrets and confidential information, such as non-disclosure agreements, remain enforceable. The FTC Rule does not apply to non-compete agreements related to the bona fide sale of a business entity and does not affect any pending enforcement actions pertaining to non-competes established before the Effective Date. The rule applies to post-employment non-compete agreements and does not impact agreements that limit competitive activities during employment. The FTC Rule overrides conflicting state laws but does not supersede state laws that provide greater protections, such as California’s comprehensive ban on non-competes for all employees, including senior executives. Current Legal Challenges to the FTC Rule It is no surprise that several federal lawsuits have been filed to challenge the enforcement of the FTC Rule. In one case, ATS Tree Services, LLC v. FTC, the U.S. District Court for the Eastern District of Pennsylvania ruled that the plaintiffs were unlikely to succeed in their claims against the FTC and denied their request for a preliminary injunction to halt the rule’s enforcement. Consequently, it is reasonable to anticipate that the ATS court may ultimately support the FTC’s position. In contrast, in Ryan LLC v. Federal Trade Commission, the U.S. District Court for the Northern District of Texas issued a limited preliminary injunction preventing the enforcement of the FTC Rule against the plaintiffs and intervenors involved in that case. The Ryan court is expected to decide by August 30, 2024, whether to grant a nationwide permanent injunction, just before the FTC Rule is set to take effect. Additionally, on June 21, 2024, Properties of the Villages, Inc. v. Federal Trade Commission was filed in the Middle District of Florida before Judge Timothy J. Corrigan. The plaintiff is seeking a preliminary injunction against the FTC Rule as it applies to them and an order to vacate it entirely under the Administrative Procedure Act. Judge Corrigan is scheduled to hear arguments on the motion for a preliminary injunction on August 14, 2024. Recommended Action for Businesses Before the FTC Rule Takes Effect Businesses should be prepared to act by the Effective Date. Despite ongoing litigation challenging the FTC Rule, no nationwide injunction has been issued, so employers should proactively: Strengthen other restrictive covenants (e.g., non-solicitation clauses) and develop strategies to address potential risks associated with the rule. Consider how the rule might impact valuations in mergers or acquisitions due to the potential for increased competition. (Note that the FTC Rule does not apply to non-compete clauses related to the bona fide sale of a business, a person's ownership interest in a business, or substantially all of a business's operating assets.) Evaluate options for updating or introducing agreements for senior executives before the Effective Date. Review and analyze the impact of the FTC Rule on existing non-compete agreements. Plan for issuing the required notices to affected employees and former employees. Offit Kurman has a dedicated practice group focused on issues related to employee mobility, including restrictive covenants and trade secrets. Our attorneys are uniquely positioned to guide you through these challenges, helping you weigh the risks specific to your business and make informed decisions that align with your business objectives. The information contained in this document is intended for informational purposes only. It should not be relied upon or construed as legal advice. In some states, this is considered advertising.
August 13, 2024
Estates and Trusts
Corporate Transparency Act Reporting for Covered Entities Owned by Trusts
We are now six months into the new compliance regime instituted by the Corporate Transparency Act (CTA) and practitioners should be aware of the reporting obligations to assist clients with required disclosures. This article limits its focus to trusts. Specifically, estate planners should be able to advise their clients as to which parties to a trust need to report under the CTA when a trust owns business interests. Reporting Requirements Effective January 1, 2024, the CTA requires that “reporting companies”[1] disclose to the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) certain information about the company including, but not limited to, its beneficial owners. Trusts themselves generally are not considered reporting companies because the CTA only applies to entities created by filing an organizational document with a state authority such as a secretary of state; however, when a trust owns interests in a reporting company, all parties associated with the trust may be considered beneficial owners of the reporting company. The CTA defines a beneficial owner as any individual who either: (1) exercises substantial control over a reporting company, or (2) owns or controls at least 25 percent of a reporting company’s ownership interests.[2] Individuals can substantially control or own a reporting company through trust arrangements. Substantial control is broadly defined[3], and there is no limit to the number of individuals associated with a trust who may need to be reported for exercising substantial control, and thus considered a “beneficial owner.” Given the far-reaching meaning of substantial control, any number of individuals that may constitute a beneficial owner with respect to a trust, including the trustee, beneficiary, grantor, or other individuals such as trust protectors, distribution trustees or advisors, investment trustees or advisors, members of the trust protector committee, holders of a power of appointment, or other power holders, whether directly or indirectly through contracts, arrangements, understandings, relationships, or otherwise. If a trust owns or controls at least 25 percent of a reporting company’s ownership interests or exercises substantial control over a reporting company, then the parties to the trust that meet the following conditions are considered beneficial owners and must provide beneficial ownership information to FinCEN: Any party to the trust who: Has authority to vote 25 percent or more of the interests of the reporting company. Has authority to dispose of trust assets. Has authority to remove and replace trustees or direct investments. Is the sole permissible recipient of trust income and principal. Has the right to demand a distribution. Has the right to withdraw substantially all of the trust assets. Has the right to otherwise control the trust’s activities. Has the right to revoke the trust or withdraw trust assets. Has the right to swap assets with the trust and reacquire assets from the trust. Once it is determined who is a beneficial owner, such parties must furnish to the reporting company their full legal name, date of birth, residential address, and an identification number from a driver’s license, passport, or other state-issued identification along with a copy of the identification document. Any time this information changes, the reporting must be updated. Corporate Trustees If the beneficial owner is a legal entity such as a corporate trustee, the reporting company should determine whether any of the corporate trustee’s individual beneficial owners indirectly own or control at least 25 percent of the ownership interests of the reporting company through their ownership interests in the corporate trustee. The following examples are provided by FinCEN: If an individual owns 60 percent of the corporate trustee of a trust, and that trust holds 50 percent of a reporting company’s ownership interests, then the individual owns or controls 30 percent (60 percent × 50 percent = 30 percent) of the reporting company’s ownership interests and is, therefore, a beneficial owner of the reporting company. If the same trust only holds 30 percent of the reporting company’s ownership interests, the same individual corporate trustee owner only owns or controls 18 percent (60 percent × 30 percent = 18 percent) of the reporting company, and thus is not a beneficial owner of the reporting company by virtue of ownership or control of ownership interests. The reporting company may, but is not required to, report the name of the corporate trustee in lieu of information about an individual beneficial owner only if all of the following three conditions are met: The corporate trustee is an entity that is exempt from the reporting requirements; The individual beneficial owner owns or controls at least 25 percent of ownership interests in the reporting company only by virtue of ownership interests in the corporate trustee; and The individual beneficial owner does not exercise substantial control over the reporting company. It may also be necessary to consider whether any owners of, or individuals employed or engaged by, the corporate trustee exercise substantial control over a reporting company. The factors for determining substantial control by an individual connected with a corporate trustee are the same as for any beneficial owner. Exemptions from the Definition of Beneficial Owner When any of the following individuals qualifies for an exception, the reporting company does not have to report that individual in its beneficial ownership information report to FinCEN. Minors (Parent or legal guardian of the minor must report instead) Nominees, intermediaries, custodians, or agents Remainder beneficiaries (Once the individual inherits the interest, this exception no longer applies, and the individual may qualify as a beneficial owner) Creditors Penalties for Noncompliance While attorneys and beneficial owners are not directly responsible for filing reports with FinCEN—the onus falls on the reporting company itself—attorneys should be prepared to advise their clients whether a trust falls within the purview of the CTA and which parties associated with a trust must provide beneficial ownership information. Penalties for failing to comply with the CTA may be steep. Parties to a trust who are considered beneficial owners must provide the reporting company with complete and accurate beneficial ownership information. If an individual willfully fails to do so, an enforcement action may be brought against such party because someone who willfully causes a reporting company’s failure to submit complete or updated beneficial ownership information to FinCEN is in violation of the CTA. Violations can result in fines of $500 per day, up to $10,000 (both adjusted for inflation), and imprisonment for up to two years. Civil and criminal liability may be avoided if an individual who submitted an original, erroneous report did not knowingly submit inaccurate information and submits an updated report correcting the inaccurate information within ninety days. Conclusion The beneficial owner information reporting analysis is complex and must be done on a case-by-case basis. A practitioner must review the extensive CTA information published on FinCEN’s website. There is no doubt that clients with trusts and trust-owned businesses will have questions about CTA compliance. Reprinted with permission from the Summer 2024 edition of The Pennsylvania Bar Association's Real Property, Probate & Trust Law Section newsletter. All rights reserved. Further duplication without permission is prohibited. [1] Reporting companies—defined as any company with twenty or fewer employees formed by filing with the Secretary of State or equivalent official—created or registered prior to January 1, 2024, have until January 1, 2025 to file an initial report; reporting companies created or registered after January 1, 2024 and before January 1, 2025, will have ninety days after creation or registration to file a report. Entities created on or after January 1, 2025 will have 30 days to submit the reports to FinCEN. The CTA exempts around two dozen categories of entities, including companies that are publicly-traded; have more than twenty full-time US employees; filed a previous year’s tax return showing more than $5 million in gross receipts or sales; have an operating presence at a physical US office location; operate in a regulated industry, such as banking, utilities, or insurance, that already imposes similar reporting requirements; or are subsidiaries of exempt organizations. The exemptions, which generally include larger companies already subject to regulation, underline the primary purpose of the CTA: to combat money laundering and other illicit activities conducted via small, private, and anonymous shell companies. [2] There are other nuances to this rule if no single owner owns more than 25%. [3] An individual or trust exercises substantial control over a reporting company if the individual or trust meets any of four general criteria: (1) the individual is a senior officer; (2) the individual or trust has authority to appoint or remove certain officers or a majority of directors of the reporting company; (3) the individual or trust is an important decision-maker; or (4) the individual or trust has any other form of substantial control over the reporting company.
August 12, 2024
Business
For Attorneys and Clients, the Internet Is the Great Equalizer
Not long ago, hiring an attorney was a lot like visiting a doctor. If you needed legal help, you would drive to your local law office. The building’s windows or signage would be emblazoned with two words: “Law Office,” often lacking identifying names or law firm branding. You would check in with a receptionist, pour yourself a cup of coffee, and wait in the lobby for the next available appointment. When the attorney was ready to see you, he—and it was almost always a he—would call you into his office, you would explain your situation, and the attorney would either offer advice, schedule a follow-up, or refer you to a colleague with specialized knowledge. As quaint as that may sound, it still reflects reality in some small towns. Moreover, the image of the local law office—a community’s elemental, all-purpose legal resource—continues to shape lawyers’ practices everywhere. Many modern-day firms cling to the notion that clients are a given and that presence alone will generate business. They think of themselves as essential services first and brands second. But where healthcare industry regulations effectively preclude any marketing effort on the part of a doctor’s office, the legal industry is relatively unhindered. And the technological developments brought by the 21st century—namely, the rise of the internet and social media—give attorneys and firms unprecedented opportunities to compete for clients’ business. The internet and social media have democratized the field both for people seeking legal assistance and those providing it. To borrow from an old adage, God may have made lawyers, but Google made them equal. Today, someone looking for a mergers and acquisitions attorney, for example, can simply type “m&a attorney” into their search bar and immediately browse listings of practices and firms in their area, along with guides on choosing the best lawyer for the job. One doesn’t need to rely on connections or blind faith to access a qualified legal advisor. It is, therefore, essential for lawyers to proactively market their firms and differentiate themselves online. If you don’t use the internet and social media to attract clients’ and prospects’ attention, a competitor will. At the same time, attorneys must contend with self-service, on-demand legal providers, such as LegalZoom, who ostensibly offer greater convenience at a lower cost. Fortunately, it’s possible for any attorney and any firm to stand out, establish credibility, and build trust with clients and prospects. All it takes is commitment, strategic planning, and a few hours per week. First, you need to develop marketing content related to your practice and interests. Content serves multiple purposes, from education to branding to lead generation and networking. Indeed, it’s at the core of nearly every marketing strategy. Blog posts, articles, videos, podcasts, and infographics are all great ways to drive traffic, cultivate an audience, and start conversations. For attorneys and firms, the type of content matters less than its consistency and authenticity. Next, find ways to distribute that content and amplify its reach online. This is where social media comes into play. LinkedIn, Twitter, Facebook, and other social networks provide means to connect with a target market, share information and links, and forge relationships with influencers—i.e., people well-positioned to broadcast your message to larger audiences. (Keep in mind that social media is one channel of many; email newsletters, for instance, remain as effective a form of content distribution as ever.) In addition to content creation and distribution, firms and attorneys can employ a number of digital marketing tactics to outrank their competitors. Through search engine optimization (SEO), you can boost your website and content’s visibility for visitors searching for specific keywords. Online advertising and paid search (e.g., via Google AdWords) also make a difference—and a small investment can go a long way. To succeed, these initiatives must complement and flow from a group’s overall business strategy. At my firm, for instance, our content development and distribution platform is part of a larger, ongoing effort to create relationships with and provide value to business owners. The internet and social media don’t replace in-person meetings and handshakes, but technology does empower us to more fully and consistently connect with the right clients. It’s the difference between passively assuming the role of generalized “law office” and actively leading with the singular skills, knowledge, and perspective you and your team bring. And digital marketing is critical for attracting not only clients and prospects but recent law school graduates and lateral hires as well. Attorneys pay attention to your firm’s marketing efforts, and if those efforts don’t support their practices and goals, they’ll look for positions elsewhere. In an era of choice, the onus is on us to guide people toward the best decisions for themselves, their families, and their organizations. In that respect, at least, the legal business hasn’t changed. Originally posted 4/5/2020, no content changes
August 8, 2024
Family Law
Protecting Your New Home During Divorce: What You Need to Know
When you are separated and going through a divorce, whether in New Jersey or almost anywhere in the United States, you need to be mindful of any assets you acquire prior to a divorce decree being signed by a judge and the entry of an accompanying Order disposing of all marital property. In New Jersey, property acquired after separation is generally considered non-marital. However, it could be considered marital if the source of funds used to acquire the real estate were marital property (i.e., saved/acquired during the marriage). For example, if you are separated and use funds from a credit union account that accrued during the marriage for a down payment, that condominium would be considered marital property and subject to equitable distribution. This means your spouse could have a claim to the condominium, and any earnings and losses from the investment may also be considered marital and subject to equitable distribution. Using the tracing method, you can determine the origination of the down payment. To safeguard a post-separation acquisition is not considered marital property, it is best to use only funds earned after separation. Alternatively, if you need to use funds that are part of the marital estate, consult with your counsel and obtain consent from the other party or the Court to use such funds as a credit against your share of equitable distribution before making the purchase. It is important to keep all documentation to trace and demonstrate the source of funds used for the purchase, thereby protecting your post-separation property from any claims by your spouse. Every case is unique. The information above is generally applicable, but it is important to consult with a seasoned family law attorney in the state in which you live. By taking these precautions, you can better safeguard your post-separation acquisitions and ensure a fair distribution of marital assets during the divorce process.
August 7, 2024
Labor and Employment
Federal Court Denies ATS Tree Services' Bid to Delay FTC Rule Implementation
On July 23, 2024, U.S. District Judge Kelley Brisbon Hodge, serving the Eastern District of Pennsylvania, rejected ATS Tree Services LLC’s request to delay the Federal Trade Commission’s (FTC) final rule, set to take effect on September 4, 2024. ATS also sought a preliminary injunction against the rule. Still, Judge Hodge also denied this request, concluding that ATS had not shown that the rule would cause irreparable harm or that it could establish a likelihood of success on the merits. This decision followed shortly after U.S. District Judge Ada Brown of the Northern District of Texas issued a preliminary injunction blocking the FTC from enforcing the rule against Ryan, LLC, a tax preparation company, and certain intervenors. Judge Hodge’s denial of ATS's motion was based on a determination that ATS had failed to prove it would suffer irreparable harm because of the rule. The court found that ATS’s claims of irreparable harm—such as nonrecoverable compliance costs and the potential loss of contractual benefits— were based upon either a choice or a “speculative risk,” which did not rise to the level of irreparable and immediate harm required for an injunction. The court cited Third Circuit precedent, stating that nonrecoverable compliance costs, such as monetary losses or business expenses, do not constitute irreparable and immediate harm required for an injunction. Additionally, the court held that ATS offered no binding precedent to support its argument that the loss of contractual rights is an irreparable harm, reiterating that such determinations must be on a case-by-case basis. Even if ATS could establish irreparable harm, the court found that it had not demonstrated a likelihood of success on the merits. Judge Hodge’s opinion included a detailed analysis of the FTC’s authority to issue substantive rules regarding unfair methods of competition. The court confirmed that the FTC has such authority, noting that Section 6 of the FTC Act does not limit the FTC to procedural rules alone. The use of the term "prevent" in Section 5 of the Act supports the FTC's ability to make rules to prevent harm before it occurs rather than merely remedying it. The court also referenced prior circuit court decisions and Congressional actions, such as the Magnuson-Moss Act, which affirmed the FTC’s rulemaking authority. The court also addressed ATS’s other challenges to the rule. It upheld the FTC’s authority to broadly regulate non-compete clauses as unfair methods of competition, rejected claims that regulation of non-competes is solely a state matter, and found that the Major Questions Doctrine does not apply to the rule. Additionally, the court dismissed ATS’s nondelegation challenge, affirming that Congress had provided a clear guiding principle for the FTC’s rulemaking authority under the FTC Act. Given these findings, the court did not need to evaluate the balance of equities or public interest considerations. This ruling is significant for several reasons. It contrasts with the earlier decision in Ryan LLC v. Federal Trade Commission, where Judge Brown granted a preliminary injunction, suggesting the plaintiffs would likely succeed on the merits. The Texas court has indicated it will decide on the enforceability of the FTC rule by August 30, 2024. While Judge Hodge’s decision represents a victory for the FTC, it may be temporary. The Texas court’s preliminary injunction in Ryan LLC hinted at potential future invalidation of the rule based on arguments that the FTC lacked statutory authority or that the rule was arbitrary and capricious under the Administrative Procedure Act (APA). If the Texas court rules against the FTC, it might vacate the rule entirely or issue a permanent injunction, though the specifics are yet to be determined. In the meantime, businesses should continue to assess and document their use of non-competes and explore alternative protections like non-disclosure agreements, invention protection, non-solicits, training repayment programs, garden leaves, and non-competes related to business sales. The FTC’s guidance suggests that if properly structured, these alternatives should comply with the new rule. Additionally, state legislation and actions by other federal agencies, like the National Labor Relations Board (NLRB), may further influence the legal landscape regarding non-competes.
August 7, 2024
Business
Five Phases of a Deal from a Sell-Side Perspective
M&A can be complex. For most sellers, it is a one-time event and likely their most significant financial transaction in life. Given the complexity and the stakes, many sellers can be confused as to what is essential and where to focus. I understand. To help, I created the below infographic as a cheat sheet for sellers to organize the various advisors involved, the different phases of their transaction, and what the seller should be focused on. Most importantly, sellers need to keep their eyes on their business during the sale transaction. As obvious as it sounds, a seller has not sold his/her business until the deal closes (and the money hits their account!). Deals can be exhausting, and deal fatigue can set in. Plus, buyers can lure sellers into a sense of combination that is not yet legally transacted. Don’t make this mistake. If the deal does not close (for whatever reason), the seller needs to be able to move forward with the business. Don’t lose sight of your prize. Further, sellers should weigh the transaction details through two lenses. First, the seller needs to understand the purchase price and how the price will be paid. Second, the seller needs to understand trailing liabilities. This is a big item as most sellers do not need to worry about personal liability for their business during the operational phase. However, most buyers make a seller guarantee all aspects of their business in a transaction. Again, M&A can be complex. Make certain to hire good advisors to provide practical advice. ANATOMY OF THE DEAL 5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement Pre- Transaction Planning Phase Rule: Find and eliminate skeletons; create multiple options Phase I: Letter of Intent Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark Phase II: Due Diligence Phase Rule: Disclosure is your friend Phase III: Contracts Phase Rule: Confirm Business terms and Phase IV: Closing Phase Rule: Time is your enemy Phase V: Post Closing Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions Post-Transaction Planning Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business Sell Side M&A: Three Rules of Thumb for the Transaction Rule #1: You haven’t sold your business until you’ve sold your business Rule #2: Get your money upfront (as soon and as much as possible) Rule #3: Reduce and eliminate your trailing liabilities Originally posted 3/26/2021, no content changes
August 1, 2024
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