Offit Kurman Blogs

Real Estate

Navigating Tough Lending Markets: Financing Strategies for Warehouse Buildouts

In the ever-evolving landscape of commercial real estate, securing financing for warehouse buildouts can be challenging. It has become increasingly challenging in the current market with persistent inflation, rising interest rates, and tightening lending standards in response to economic uncertainty, geopolitical tensions, supply chain disruptions, and fluctuating market demands. However, navigating these hurdles is possible with strategic planning and innovative approaches. Here’s a guide on how to finance a buildout for warehouse space when faced with a difficult lending market: Thorough Business Plan: Begin by crafting a detailed business plan outlining your vision for the warehouse space, potential uses, projected cash flows, and return on investment. Highlighting the project’s market demand and potential profitability will be crucial in convincing lenders of its viability. Build Relationships with Lenders: Establishing strong relationships with lenders is key, especially in challenging financial environments. Research and identify lenders with experience or interest in financing similar projects and contact them directly. Networking events and industry conferences can also provide opportunities to connect with potential lenders. Alternative Financing Options: Explore alternative financing options beyond traditional bank loans, such as private equity, crowdfunding, or mezzanine financing. These avenues may offer more flexibility and willingness to invest in projects that traditional lenders might overlook. Government Programs and Incentives: Investigate government programs and incentives, such as tax credits, grants, or low-interest loans, that support commercial real estate development. These initiatives can provide valuable financial assistance and make your project more appealing to lenders. Collateral and Equity Contribution: In challenging lending markets, lenders may require a higher level of collateral or equity contribution to mitigate their risk. To strengthen your loan application, be prepared to offer additional assets or invest more equity in the project. Demonstrate Strong Management and Expertise: Highlight your experience and track record in managing similar projects or operating warehouse facilities. Lenders are more likely to trust borrowers who demonstrate expertise and a proven ability to successfully execute complex real estate ventures. Optimize the Buildout Plan: Streamline the buildout plan to maximize efficiency and minimize costs without compromising quality. Consider phased construction or implementing value engineering techniques to reduce upfront expenses and improve the project’s financial feasibility. Secure Tenants: If possible, secure pre-leases and/or anchor tenants for the warehouse space before seeking financing. Having committed tenants in place can give lenders added confidence in the project’s revenue potential and decrease perceived leasing risk. Mitigate Environmental and Regulatory Risks: Conduct thorough due diligence to identify and address any environmental or regulatory risks associated with the project. Proactively addressing these issues can alleviate concerns for lenders and increase the likelihood of securing financing. Negotiate a Tenant Improvement Allowance: Tenant Improvement Allowances are funds provided by landlords to tenants for tenant buildouts. The amount offered can vary significantly based on the lease length, space condition, and market conditions. A Tenant Improvement Allowance can be particularly beneficial for startups or businesses with significant initial capital expenditures. Should you wish to pursue this option, be ready to present detailed plans and budgets for the proposed improvements. Consult with Legal Counsel: Seek guidance from legal counsel specializing in commercial real estate finance. Their expertise and insights can help you navigate the complexities of the lending market and identify the most suitable financing options for your specific project. By implementing these strategies and maintaining a proactive and diligent approach, financing a buildout for warehouse space in a challenging lending market becomes feasible. While obstacles may arise, perseverance, creativity, and strategic planning are key to overcoming them and realizing your vision for the project. For personalized assistance tailored to your specific needs and circumstances, please feel free to contact Faith Miros or Mark Wendaur. We are here to help you successfully navigate the complexities of your warehouse buildout.

June 5, 2024

Labor and Employment

Navigating Overtime Regulations: Plaintiffs Challenge Department of Labor's New Overtime Rule

On May 21, 2024, a significant event unfolded in the legal landscape as several plaintiffs filed a lawsuit challenging the Department of Labor’s (DOL) new overtime rule.  This rule, which raises the salary threshold for professional and highly compensated employee exemptions, is scheduled to take effect on July 1, 2024. The rule, in essence, stipulates that a worker can only be exempt from overtime under the professional or highly compensated exemptions if they are paid at least $43,888 annually. For a highly compensated employee, the threshold is set at$132,964. These thresholds are set to increase over three years, beginning in January 2025. The lawsuit was filed in the Eastern District of Texas, the same court where plaintiffs successfully challenged the Obama-era overtime rule in 2016. That rule sought to raise the salary threshold for executive, administrative, and professional exemptions to $47,476. Plaintiffs argue that this rule’s “new salary threshold is so high that it is no longer a plausible proxy for delimiting which jobs fall within the statutory terms ‘executive,’ ‘administrative,’ or ‘professional.” It also maintains that the DOL’s planned three-year automatic increase to the salary is illegal. Moreover, the Trump-era overtime rule is currently under review by the Fifth Circuit Court of Appeals. If the Court of Appeals finds in the plaintiffs’ favor, the 2024 DOL rule would also be overturned. Businesses should still assume that the new rule will go into effect on July 1, 2024. There is no telling whether either court will decide these lawsuits before that date.  If you have any questions, please do not hesitate to contact me.

June 5, 2024

Family Law

Dividing Luxury Personal Property

Divorce proceedings can be complex and emotionally charged, particularly when substantial assets are involved. Among the most challenging items to divide are luxury personal properties such as art, automobiles, yachts, and airplanes. These high-value assets not only represent significant financial investments but also often carry sentimental value and symbolize a particular lifestyle. Properly navigating the division of such assets requires a combination of legal acumen, financial expertise, and, sometimes, emotional resilience. The first step in dividing luxury personal property is to establish a fair and accurate valuation. Unlike more common marital assets, luxury items may require specialized appraisals. Several factors contribute to the value of these assets, including: Age and Condition: Similar to real estate, the age and current condition of the asset can significantly affect its market value. Regular maintenance and upgrades can preserve or even enhance their worth. Market Demand: The market for luxury assets is niche and fluctuates based on economic conditions and buyer interest. An expert appraiser will consider current market trends and comparable sales. Customization and Upgrades: Custom features, high-end materials, and state-of-the-art technology can increase the value of these assets. However, highly personalized modifications might appeal to a narrower pool of buyers, potentially impacting resale value. Engaging a certified appraiser who specializes in luxury assets is essential to ensure that both parties receive a fair assessment. Divorce laws vary by jurisdiction, but in many places, assets acquired during the marriage are subject to equitable distribution. Equitable does not necessarily mean equal; rather, it means fair. Courts consider various factors to determine an equitable distribution, including: Length of the Marriage: Longer marriages might result in a more even split of assets. Contributions to the Marriage: Contributions can be financial or non-financial, such as homemaking or supporting a spouse's career. Economic Circumstances: The current and future economic circumstances of each spouse are considered. If one spouse has significantly higher earning potential, this may influence the division. Negotiation and mediation can also play crucial roles in this process. Couples may agree on a division that reflects their unique circumstances, potentially avoiding the need for a court to decide. Once valuation and legal considerations are addressed, couples have several options for dividing luxury personal property: Sell and Split the Proceeds: Selling the asset and dividing the proceeds can be the simplest solution. However, this process can be time-consuming and may result in a sale below market value, particularly in a slow market. One Spouse Buys Out the Other: If one spouse has a strong attachment to the asset or a greater ability to maintain it, they may opt to buy out the other’s interest. This requires an accurate valuation and may involve refinancing or taking on debt. Joint Ownership Post-Divorce: Though less common, some couples agree to maintain joint ownership, especially if children are involved or if the asset is used for business purposes. Clear agreements and boundaries are essential to make this arrangement work. Trade-Offs with Other Assets: Another approach is to offset the value of the asset with other marital assets. For example, one spouse may retain the yacht while the other receives a comparable value in real estate, investments, or other property. Beyond financial and legal aspects, emotional and practical considerations can influence the division of luxury assets. Items such as yachts and airplanes are not just assets but lifestyle choices, often tied to cherished memories and social status. Couples must navigate these waters with sensitivity and pragmatism. Usage and Maintenance: Consider who used the asset more frequently and who is better equipped to handle ongoing maintenance costs and responsibilities. Sentimental Value: Acknowledge any sentimental attachment and weigh it against practical realities. Sometimes, letting go can be the healthiest choice. Future Needs: Consider each spouse’s future needs and lifestyle. For instance, if one spouse plans to relocate far from the coastline, retaining a yacht may be impractical. Dividing luxury personal property in a divorce is a multifaceted process that requires careful consideration of legal, financial, and emotional factors. By engaging experts, understanding legal frameworks, and negotiating with transparency and fairness, couples can reach an agreement that respects both parties' interests and paves the way for a smoother transition to the next chapter of their lives.

June 4, 2024

Family Law

Home State Jurisdiction and the UCCJEA: Ensuring Stability in Child Custody Matters

In the arena of family law, child custody disputes often present some of the most challenging issues. To provide clarity and uniformity across state lines, the Uniform Child Custody Jurisdiction and Enforcement Act (UCCJEA) was enacted. Central to the UCCJEA is the concept of "home state jurisdiction," which serves as the cornerstone for determining the appropriate jurisdiction for custody matters. Understanding the UCCJEA The UCCJEA, adopted by 49 states, the District of Columbia, Guam, and the U.S. Virgin Islands, aims to avoid jurisdictional competition and conflict in child custody matters. It establishes clear guidelines for courts to follow, ensuring that only one state exercises jurisdiction over a child custody case at any given time. This uniformity helps prevent parents from "forum shopping" for a more favorable court and minimizes legal conflicts across state borders. Home State Jurisdiction: The Primary Principle Home state jurisdiction is the principal basis for initial child custody determinations under the UCCJEA. The "home state" is the state where the child has lived with a parent or a person acting as a parent for at least six consecutive months immediately before the commencement of the custody proceeding. For children under six months old, the home state is where the child has lived since birth. This principle ensures that custody decisions are made in the state with which the child and family have the most significant connection, promoting stability and continuity for the child. Application of Home State Jurisdiction Initial Custody Determinations: The UCCJEA mandates that the home state has exclusive jurisdiction to make an initial custody determination. If no state qualifies as the home state, jurisdiction may be established in a state where the child and at least one parent have significant connections and where substantial evidence concerning the child's care, protection, training, and personal relationships is available. Significant Connection Jurisdiction: When no home state exists, a court may exercise jurisdiction if the child and a parent have a significant connection with the state and substantial evidence about the child's care is available there. This secondary basis for jurisdiction ensures that a court with meaningful ties to the child can make informed custody decisions. Emergency Jurisdiction: The UCCJEA allows for temporary emergency jurisdiction if the child is present in a state and has been abandoned or needs protection due to mistreatment or abuse. This provision ensures that urgent matters can be addressed promptly, even if another state is the child's home state. Modification of Custody Orders: The UCCJEA also governs the modification of custody orders. Generally, the state that made the original custody determination retains exclusive jurisdiction to modify its order unless it relinquishes jurisdiction or neither the child nor the parents have a significant connection with the state anymore. Enforcement Across State Lines One of the critical features of the UCCJEA is its provisions for enforcing custody determinations across state lines. Courts are required to enforce and not modify valid custody orders from other states, ensuring consistency and respect for judicial decisions across the country. Challenges and Considerations While the UCCJEA provides a comprehensive framework, applying its principles can still be challenging. Issues such as determining the child's home state in cases of frequent moves, addressing allegations of abuse, and coordinating between states require careful legal navigation. Additionally, the only state that has not adopted the UCCJEA is Massachusetts, which sometimes necessitates additional considerations when dealing with interstate custody matters involving this state. Should you have a matter involving interstate custody, consider contacting an experienced family lawyer to assist you with navigating your case.

June 4, 2024

Landlord Representation

Upcoming Deadlines/Changes to DC Employment Law

The District of Columbia takes a very active approach to regulating the employer-employee relationship, which frequently results in new obligations being imposed on employers. These obligations can oftentimes be difficult for small and mid-market businesses to monitor. Despite this difficulty, the DC Government has become increasingly more aggressive in bringing enforcement actions against employers. Therefore, it’s essential to be proactive in identifying new obligations and ensuring compliance, thereby minimizing the likelihood of getting caught flat-footed and having to pay fines. Importantly, a few of these obligations and deadlines are quickly approaching. Wage Transparency Act[1] Beginning on June 30, 2024, employers with one or more employees in the District of Columbia will be required to disclose a greater amount of information to prospective job applicants. Specifically, employers will be required to list the anticipated compensation in all job listings by providing a good faith approximation of minimum and maximum salary or hourly pay. The Wage Transparency Act also mandates that employers disclose the existence of healthcare benefits that the prospective employee may receive prior to the initial interview. Moreover, the act prohibits employers from seeking a job applicant’s wage history and screening prospective employees based upon that information. Minimum Wage Increase[2] Earlier this year, the District of Columbia Department of Employee Services announced a minimum wage increase. On July 1, 2024, the D.C. minimum wage will experience a modest bump, jumping to $17.50. Additionally, the base minimum wage for tipped employees will increase to $10.00. These increases will affect all employers within the District of Columbia, regardless of size. Impending Deadline for Report to DDOT Displaying Compliance with Parking Cashout Law In 2020, the District of Columbia enacted the Parking Cash Out Law, which imposes notable obligations on employers with twenty or more employees that offer free or subsidized parking. Under the parking cashout law,[3] employers are required to offer either (a) a clean air transportation benefit in an amount equal to or greater than the parking benefit offered to employees, (b) a transportation demand management plan to reduce employee commuter trips made by car, or (c) pay a clean air compliance fee of $100 per month for each benefit who is offered a parking benefit. To monitor compliance, employers are required to submit a report to the District’s Department of Transportation (“DDOT”) every two years that shows the employer’s compliance. Additionally, employers that are exempt from this statute are also required to submit a report outlining the basis for their exemption. The first report was due to the DDOT by January 15, 2023, which means the deadline for the next report will be in roughly six months. Disclaimer: The contents of this blog should not be considered legal advice [1] Chapter 14A. Wage Transparency. | D.C. Law Library (dccouncil.gov) [2] GOVERNMENT OF THE DISTRICT OF COhttps://does.dc.gov/sites/default/files/dc/sites/does/publication/attachments/DOES_OWH%202024%20Minimum%20Wage%20Increase%20Notice.pdfLUMBIA (dc.gov) [3] D.C. Law 23-113. Transportation Benefits Equity Amendment Act of 2020. | D.C. Law Library (dccouncil.gov)

June 3, 2024

Mergers and Acquisitions

Is Your M&A Attorney an Advisor or a Consultant?

For many people, selling a business is their largest, lifetime financial transaction. And typically, it is a one-time event. And further, most people have little experience with this transaction type. Consequently, surrounding oneself with good advisors and advisory teams is paramount. An M&A sale is essentially one really large commercial transaction.  Of course, the transaction is documented with contracts containing a host of legal provisions.  However, the details of the agreement essentially spin around a sophisticated circumstance where 2 or more parties are negotiating a financial transaction. Hence, understanding market and what are reasonable terms within the “bell curve” of options is important to the seller. The seller’s attorney must routinely work in the M&A space to have the current knowledge base of what is considered market. M&A is not a place to dabble. M&A attorneys must provide their clients with recommendations and suggestions – not merely options, information, and forks in the road. Reviewing complicated purchase agreements and understanding the terms is most basic; providing true counsel and advice is a must. I have practiced in the M&A space for more than 25 years representing both buyers and sellers. My practice and my colleagues at Offit Kurman have successfully concluded hundreds of transactions by carefully subscribing to the formula of (i) educating our clients on the circumstances; (ii) making concrete and definitive recommendations; and (iii) understanding the client’s risk tolerance and ultimate objectives to assist the client with arriving at their decision. Because in the end the M&A transaction is likely the largest financial transaction for most clients. Originally posted on 12/4/2020, no content changes.

May 30, 2024

Mergers and Acquisitions

3 Questions and 3 Pieces of Advice: In a Hot M&A Market, Is Now the Time to Sell Your Business?

The M&A market has been very robust over the last few years.  This year the market is still receptive to deals.  With all of the momentum this M&A momentum, many business owners have a once-in-a-lifetime opportunity to retire wealthy. To take advantage of that opportunity, however, owners need to act fast. The market won’t stay receptive for much longer. And with a potential economic downturn ahead, the next window to maximize sales value may be five or 10 years out. As I have been telling my clients, now is the time to choose a path: a) get ready to sell your business as soon as possible, or b) prepare to keep running it through the next few years. To determine which path is right for you, consider the following questions: Do you feel emotionally ready to sell? The sale of a business is likely the most sophisticated and largest transaction a seller will encounter in the course of their career. There’s a reason most only go through with it once. Even with years of preparation, no owner can fully predict the myriad of issues and uncertainties in M&A until a buyer commences diligence. You need to be ready for ups and downs, back and forth negotiations, false starts and sudden surprises. Do you know what your business is really worth – and how much M&A may cost? Get a valuation – perhaps more than one. Owners are too close to their businesses to assess their worth objectively. Once you truly understand the value of your company, be prepared to set aside more than you think you’ll need to sell your business. Even if you achieve ideal terms, you will need to be ready to cover any trailing liabilities post-closing. How long will you have the energy to continue running your business? The older you get, the more critical the decision to sell your business becomes. Owners need to be realistic about their abilities and limitations, particularly if things were to go sour: e.g. contacts disappear, key employees leave or industry disruption makes the business irrelevant. Even if a potential deal doesn’t seem perfect, an owner selling now would have a longer runway to retirement. Otherwise, the owner would need to spend the next few years working harder than ever to carve out better numbers. Whichever path you choose – selling now or waiting – there are three steps you can take to set yourself up for M&A success: Commit to your plan. Do not let others set the terms of your business’s outcome for you. Use the market to your advantage. If you’re thinking of selling now, don’t sign the first letter of intent that comes your way. If you’re waiting it out, don’t concede to a mediocre offer in a couple years; instead, turn into an opportunity to create competition over your business. Focus on creating conveyable value. This one is simple: maximize your earnings, minimize your risks and secure your greatest assets – be they contracts, intellectual property, real estate or skilled employees. Build the team. Whether selling now or later, consider hiring an M&A advisor – they tend to pay for themselves. At the very least, discuss your exit plan with your financial planner, CPA and attorney. Look within your organization for people you can trust to go to bat for the business during negotiations with a buyer: executives, board members and finance personnel are good candidates. Make no mistake: M&A is a challenging and costly prospect no matter what the market looks like. But by developing the right strategy, setting the right expectations and finding the right allies early on, any business owner can begin their exit with confidence.

May 23, 2024

Business

Managing Contract Liability in Ransomware Disruptions: A Case Study in the Logistics Sector

Recent litigation in the State of Washington highlights the need to address the evolving landscape of cyber liability and ransomware attacks. The lawsuit filed by POC USA, LLC ("POC") against Expeditors International of Washington, Inc. ("Expeditors") stems from a failure to fulfill third-party logistics services during a ransomware attack. The rising prevalence of ransomware is a concern that all businesses should address in their agreements. Because this litigation pertains directly to shipping fulfillment centers, we want to address how industry stakeholders can proactively address these cyber liability and ransomware issues in their service agreements. For context, POC manufactures and distributes protective gear for gravity sports such as skiing and mountain biking. Expeditors, on the other hand, is a third-party logistics ("3PL") provider. Expeditor contracted with POC and agreed to handle POC's shipping and distribution of protective gear. Expeditors suffered a ransomware attack that disrupted their ability to provide 3PL services for 90 days. Consequently, POC filed suit seeking the recovery of damages stemming from lost revenue resulting from the ransomware attack. POC’s complaint includes a claim for: Breach of Contract Breach of Implied Covenant of Good Faith and Fair Dealing Washington Consumer Protection Act Violations Unjust Enrichment Negligence and Gross Negligence In response, Expeditors filed a motion to dismiss, seeking a court order dismissing POC’s claims. On April 11, 2024, the court issued an opinion and order, dismissing the claims of negligence, gross negligence, and bailment. However, POC’s claims for breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and Washington Consumer Protection Act violations were not dismissed remain subject to litigation. This pending litigation highlights the need to analyze and update commercial agreements to address current events that may cause service disruptions, such as ransomware. Failing to properly address these disruptions in your commercial agreements could leave your organization vulnerable to significant and unexpected claims. In today’s business environment, it is essential for almost every company to proactively review and update their agreements to address cyber liability and ransomware concerns effectively. The only exception would be a business run entirely on offline systems, a rarity today. Below are some of the relevant clauses to examine: Limitation of Liability: While many agreements limit liability to only the consideration paid under the agreement, the exact text of that clause matters. The language of that limitation of liability clause may not limit certain claims asserted for loss of services stemming from a ransomware attack. Based on the business operations, it may be prudent to ensure that your distribution services agreement does not limit liability solely to damages stemming from property damage (thereby allowing unlimited liability for claims other than property damage). At a minimum, the language should be updated to expressly limit liability for damages resulting from a loss of services due to uncontrollable events. This issue should also be addressed in your force majeure clause, as discussed in the following paragraph. By addressing this in the force majeure clause, cyber-attack liability can be effectively limited. This approach is preferred because, as illustrated in the case of POC v. Expeditors, where the amount paid under the agreement in prior years was $2.5-3 million, each company should endeavor to avoid any damages stemming from the malicious acts of a third party. Force Majeure: The force majeure clause is another critical clause that must be updated to address these issues. Relying on a contract’s limitation or disclaimer of liability clause is insufficient. The force majeure clause should expressly identify a force majeure event to include a loss of access or inability to perform services due to cyber-attacks, ransomware attacks, or other malicious third-party attacks on your cyber infrastructure, including hardware, on-premises, and cloud-based systems of any kind. Warranties and Representations: One of the factual averments set forth in the POC vs. Expeditors litigation focused on Expeditor’s representation that it used “up-to-date tools” that enabled Expeditors to move cargo “securely.” Arguably, Expeditors’ reference to “security” may mean physical security. Still, the lack of clarity opened Expeditors up to litigation based on this representation, including cyber security. A better approach to representations regarding cyber security should include a “commercially reasonable” qualifier. Companies should also audit their marketing material to ensure no marketing copy is overcommitting your organization to provide best-in-class cyber security, especially when that is not the case. Catch-All Disclaimers: Additional language expressly disclaiming the ability to perform services in the event of a cyber-security or ransomware attack is a widely accepted and prudent way to avoid claims from your customers. These clauses may be heavily negotiated but should be a baseline starting point for every 3PL service provider, providing a sense of industry-standard security. Cyber Insurance: Cyber liability insurance is another consideration to examine outside of the contract terms. Many service agreements now require that all parties maintain a cyber liability insurance policy; however, these policies are becoming increasingly expensive. The cost of insurance premiums also depends on the security measures your business puts in place, so engaging a cyber security professional is also a prudent method to mitigate cyber liability exposure and reduce insurance premiums. The above list is not exhaustive, and every organization will have scenarios that require bespoke contract language to address (and mitigate) potential customer claims. Engaging competent legal counsel capable of crafting the appropriate language within your agreements is crucial to ensuring comprehensive protection.

May 16, 2024

Commercial Litigation

Facing the Scam: What to Do If You've Fallen Victim to a NYC Apartment Rental Scheme

There is a horrific scam that preys on the vulnerability of renters in New York City, and it happens more often than you might think. The process of securing an apartment in the city is already difficult enough. It involves gathering numerous documents and endless days and nights of searching. When you find a place you like, you have to move quickly. It’s in the midst of this stressful process that the scam happens. The scam takes many different deceptive forms, but the elements remain the same: someone pretends to be a broker or an agent; that person shows you an apartment, either in person, maybe virtually; acceptance of your security deposit, and perhaps even the first month’s rent and broker’s fee. Then, this person vanishes, leaving you without an apartment and out a lot of money. It turned out that the person wasn’t an agent or broker at all. Maybe they were able to obtain a set of keys to a vacant apartment and show you the place. Or perhaps they assured you they had arranged for the keys to be delivered to you after you paid. There are even some horror stories of the person giving the would-be renters the keys to an apartment, the would-be renters moving in with belongings, and then an actual broker with prospective tenants walking in to find the occupants getting settled. There are many ways to prevent this from happening, and the New York Police Department has given its tips for avoiding the scam. As has StreetEasy. But what do you do if it’s already happened to you? Of course, you can go to the police and see if the scammer can be apprehended and prosecuted, but you also want to get your money back. That’s when having an attorney at your side can make all the difference. Going after the “broker” or “agent” is one strategy. There are some pieces of information that you and your attorney can use to help go after them. Ideally, this is bank account information or actual names and phone numbers. Doing that investigative work with your attorney will go a long way in identifying the individual who scammed you. If you can identify them, you can file a lawsuit against them. Another strategy, depending on the circumstances, is to go after the actual landlord or whoever has the right to be in the apartment. Sometimes, it’s the tenant who is behind on rent and pretending to sublet the apartment. Other times, the landlord has made it just a bit too easy to get the keys to the apartment, and someone saw the opportunity to hatch their scheme. Regardless, going after them for their fault in causing you to get scammed gives you a chance to get your money back.

May 15, 2024

Family Law

Should Your Wedding Checklist Include a Prenup?

Fans of The Golden Girls may remember the episode in which Dorothy decides to remarry her ex-husband, Stan. He’s the selfish, cheating, novelty salesman Dorothy had married as a teenager in a shotgun wedding. Although they are now divorced, Stan remains the bane of Dorothy’s existence. She calls him, without irony, a “yellow-bellied sleaze ball,” among other epithets. Dorothy’s decision to remarry Stan has Rose, Blanche, and Sophia all rolling their eyes. It is only on the day of the wedding, when Stan unexpectedly asks Dorothy to sign a prenuptial agreement, that she comes to her senses and calls it off. “I don’t want to make the same mistake twice,” she tells her disbelieving guests. A prenuptial agreement may be the least romantic thing an engaged couple can talk about. Simply bringing up the topic may arouse suspicion, suggesting a lack of good faith or an expectation of divorce. But rather than any want of sincerity, preparing a prenup can reflect a couple’s maturity and respect for each other. The process of sorting through the terms of the agreement may even bring them closer together. Under Maryland law, the separate assets each partner brings to a marriage belong to that person, even if the marriage ends in divorce. The assets they acquire during the marriage, however, would be divided equitably between them in the event of a breakup. A prenup is a contingency plan that enables the couple to say what that division should look like. For example, each partner could simply take what they separately contributed to the union and be on their way. Or the partner with greater assets could agree to support the other long enough for them to get back on their feet. The agreement can also say what happens to the family home. Should one partner be allowed to buy out the other’s interest in the house? Or should the property be sold and the proceeds divided according to the percentages each of them contributed to the down payment and mortgage installments? Children are another consideration. If one partner has children from a prior relationship, the agreement could allow him to bequeath his entire estate to them, rather than his new spouse. This provision would trump the surviving spouse’s legal right to take a third or more of the estate as her “spousal share.” If the couple already has children together, one or both spouses could agree to maintain life insurance for the children’s benefit while they are still minors. The one thing a prenup cannot dictate is custody of the parties’ own children in the event of divorce. Regardless of what provisions it includes, a prenuptial agreement can be a reassuring document to have in the fire safe. It’s a lot like the airbag in your car—you hope you’ll never have to use it, but you’ll be grateful to have it if the need arises. As a practical matter, that need may be more likely to arise for some couples than for others. With the arrival of same-sex marriage, many couples are tying the knot after having been together for years or even decades. These relationships have already withstood the test of time and are unlikely to end in divorce. But two people in a newer relationship may like the idea of a prenup so they can enter into marriage prepared for the unexpected. In the same way, couples who are significantly different in age, wealth, or level of education should give a prenuptial agreement serious consideration. Having children from a prior marriage is another circumstance in which a prenup may be advisable. If Dorothy Zbornak, already in her wedding dress, had gone ahead and signed Stan’s prenup, it probably wouldn’t have held up in court. Stan, ever the yutz, had neglected to follow some important formalities. First, the document should include full financial disclosures from both partners. Any omission could invalidate the agreement. Second, two attorneys should be involved, one to represent the separate interests of each partner. And third, sufficient time should be allowed between executing the agreement and exchanging vows to avoid the suggestion that either partner was pressured into signing. A valid prenuptial agreement can save a couple time, money, and heartache if things don’t go as expected. If there are wedding bells in your future, contact an attorney who practices in this area to determine whether a prenuptial agreement is right for you.

May 15, 2024

Estates and Trusts

When Athletes Stumble: The Perilous Pitfalls of Financial Scams and the Simple Legal Mechanisms to Stop Them

In a world where reputation is paramount, athletes often stand as symbols of hard work, determination, wealth, and success. Despite their celebrity, they are not immune to the snares of financial scams. Take, for example, the LA Dodger’s own Shohei Ohtani’s former interpreter, who pled guilty just last week to bank and tax fraud after admitting to stealing more than $16M from the Dodger’s phenom. It drew to mind the NBA’s own Tim Duncan, who lost more than $20M to an unscrupulous financial advisor, leading Duncan down a seven-year path of bad investment after bad investment.  From musicians (here’s looking at you, Billy Joel) to politicians and athletes to actors like Kevin Bacon, a victim of Bernie Madoff, the list of those who have fallen victim to fraudulent schemes is as diverse as it is alarming. In this article, we delve into the web of financial scams and explore why even the most prominent athletes at the top of their game can become ensnared. We will also offer insight into simple ways that others in their position can avoid the quandary in which Shohei, Tim, Billy, and Kevin found themselves. The Allure of the Scheme Scams come in various guises, each designed to exploit vulnerabilities and capitalize on trust. Whether it's a Ponzi scheme promising unrealistic returns, a phishing scam targeting personal information, or old-fashioned fraud, perpetrators often employ sophisticated tactics to ensnare their victims. The allure of these schemes can be particularly potent for athletes and public figures. With wealth and often hectic training and game schedules, many athletes entrust their financial affairs to advisors or hangers-on, unwittingly exposing themselves to exploitation. Moreover, the desire for greater returns or the fear of missing out on lucrative opportunities can cloud judgment, making them susceptible to manipulation. Trust Betrayed One of the most devastating aspects of financial scams is the betrayal of trust. In Shohei’s case, his translator, the person he relied upon to bridge language barriers, engage with the press, and provide the in-game interpretation that Shohei needed to perform, was the culprit, gambling away what many believe is more than $20M in total, $16M of which came from Shohei. For Tim Duncan, his financial advisor, whom he had trusted for nearly a decade, unwittingly involved Duncan in speculative investments and risky loans and took Duncan down with him. Busy athletes rightly place their faith in advisors, managers, and associates to safeguard their assets and guide their financial decisions. When that trust is violated, the repercussions can be profound, both financially and emotionally. The Power of Due Diligence While no one is immune to the threat of financial scams, athletes can take steps to mitigate their risk. Chief among these steps is the power of due diligence and having proper legal mechanisms plan in place to reduce exposure. By thoroughly vetting financial advisors and lawyers, conducting independent research, scrutinizing investment opportunities, and then creating the proper legal infrastructure of checks and balances, athletes can better protect themselves from potential scams. Financial advisors, as licensed professionals, undergo scrutiny to ensure their integrity. Their licenses are subject to review for any prior acts of misconduct. At large institutions, advisors face additional scrutiny from their compliance departments. Ensuring that client assets are invested properly, aligning with the standards of a prudent investor based on the asset amount, age, and relationship to risk. Licensing and infrastructure can go a long way to ensure that one bad actor cannot misuse funds.   Like financial advisors, lawyers also hold licenses and have their own areas of concentration. If an athlete requires legal assistance for estate and financial documents, most likely, they should consult a lawyer other than the one that drew up his playing contract. Instead, the athlete should turn to a lawyer who has expertise in properly drafting estate planning and financial documents that will insulate and thwart predators from penetrating the athlete’s financial assets. Trust the Process The level of protection that a properly drafted legal infrastructure to manage an athlete’s assets cannot be understated. Most estate plans for athletes and other public figures include one or more Trust instruments to accomplish this protection. Trust instruments, whether revocable or irrevocable, can own all types of assets; from the earnings of a lucrative contract to real estate to business ventures to life insurance, a Trust is the vehicle that manages most assets for athletes. First and foremost, when a Trust is created, it is private. There is no disclosure to the public or in the public record to disclose the identity of the Trust creator. A Last Will and Testament, for example, is a public record that can be viewed and reviewed by any member of the public. Trust assets are held and distributed without notice to anyone other than those authorized in the Trust instrument. Upon the athlete’s death, their estate is likewise distributed without an action of the court or notice to the public. The bequests that the athlete makes in his Trust can also be made in further Trust to protect the athlete’s family members from the same financial vulnerability they may have faced during their lives. It Takes Two When a Trust is created, the role of the Trustee is vitally important to protect the athlete from wrongdoing. As the name implies, the Trustee must be trusted. The Trustee’s job is to manage Trust assets, make investments, and distribute income and principal among countless other financial transactions related to Trust assets. Many of my public figure clients are inclined to appoint their closest friend or a family member in this role for their rightful fear of exploitation. While often these relationships are the most trusted, these individuals may lack the necessary skill set to effectively manage such significant assets and stave off financial scams and opportunistic predators. For those with significant assets like athletes and other public figures, having more than one Trustee appointed in this capacity may make sense, requiring that they act jointly. For practical purposes, appointing two Trustees requires two signatures, two sets of eyes, and two individuals reviewing transactions. Simply put, an act of fraud is much harder to commit when two Trustees are involved. When two individuals are appointed, the most trusted person together, with someone with the financial acuity, can work as a team to ensure that the athlete does not fall victim like so many who came before them. Leave it to the Professional Choosing the right Trustee to execute the athlete’s wishes and oversee their Trust assets typically requires a professional with the expertise to navigate the complexity of significant net worth. Given the complexities involved, including tax considerations, intricate investment vehicles, and corporate structures, an independent corporate Trustee is often necessary. A corporate Trustee is not an individual but rather a financial institution, such as a bank or investment firm, that assumes the fiduciary responsibility of managing a Trust. Athletes often hire corporate Trustees for their professional experience, financial acumen, and legal knowledge in trust matters, qualities that a trusted family member or friend may not possess. Hiring a corporate Trustee to collaborate with the athlete’s trusted family member or friend provides an additional layer of protection against financial misconduct. This partnership ensures that the athlete’s assets are safeguarded and minimizes the risk of unchecked financial mismanagement that could occur with the sole reliance on one individual. The Road to Recovery For those who have fallen victim to financial scams, the road to recovery can be long and arduous. Beyond the immediate financial losses, there may be legal battles, reputational damage, and emotional trauma to contend with. The prevalence of financial scams is a stark reminder that no one is immune to deception, regardless of their stats on the court or stature in pop culture. Shining a spotlight on financial scams and sharing personal experiences like those of Tim and Shohei can help raise awareness, potentially preventing others from suffering a similar fate. Thoroughly vetting professionals and ensuring that athletes or public figures have the proper legal documents in place can help to avoid a similar fate.

May 15, 2024

Labor and Employment

The Right to Disconnect for California Employees

California is often the first when it comes to new laws and regulations governing employers, and a new law introduced by San Francisco Assemblyman Matt Haney would be another first of its kind. If passed, this proposed legislation would make California the only state in the country to mandate that employers give their employees the ability to disconnect. Assemblyman Haney has introduced a bill giving employees the legal right to disconnect, ignoring non-emergency calls and emails after the workday has concluded.  The bill proposes a fine of at least $100 for violations. Assemblyman Haney is basing this law off similar legislation introduced in Australia that would give employees the right to disregard unreasonable calls and messages from their employer outside of normal work hours. The Australian legislation is designed to ensure employees are not working unpaid overtime. The proposed California  legislation, AB-2751, would require both public and private employers to establish workplace policies providing employees the right to disconnect from communications from the employer during nonworking hours, except as specified. The right to disconnect makes an exception for an emergency or for scheduling (scheduling is limited to changes to a schedule within 24 hours). Otherwise, an employee has the right to ignore communications from the employer during nonworking hours.  AB 2751 is silent on whether it applies to both exempt and non-exempt employees. The bill requires employers to establish clear nonworking hours via a written agreement between an employer and employee. Nonworking hours would include both before and after an employee’s assigned hours of work. Employees would be able to file a complaint with the Labor Commissioner if there is a clear pattern of violation, with employers subject to civil penalties. A pattern of violation is defined as three or more violations of the right to disconnect. Canada, France, Spain, and other countries in the EU already have similar laws on their books. But it is important to note that New York considered a very similar measure back in 2018, and that failed to pass. So, it will be interesting to see if California moves ahead with the first implementation of a right to disconnect in the US. We will be watching closely and updating as this develops, as this is something California employers will need to monitor.

May 9, 2024

Family Law

What happens to Debt in Divorce: Understanding Financial Responsibilities

Divorce is a challenging time, often fraught with emotional and logistical complexities. Amidst the emotional upheaval, one aspect that requires careful consideration is the division of debts. Financial entanglements can add a layer of complexity to an already difficult situation. Understanding how debts are handled during a divorce is crucial for both parties to ensure a fair and equitable resolution. When a couple decides to end their marriage, their assets and debts must be divided, ideally through an amicable agreement or by court order if necessary. Debts accumulated during the marriage, whether they are mortgages, car loans, credit card debts, or other financial obligations, are subject to division, much like marital assets. The legal principle governing debt division varies depending on the jurisdiction. In community property states, such as California, debts incurred during the marriage are generally considered community property and are divided equally between spouses, regardless of who incurred the debt. In equitable distribution states, which include the majority of states in the US, debts are divided fairly but not necessarily equally, taking into account factors such as each spouse's income, earning potential, and financial contributions to the marriage.  Types of Debt: Marital Debt: Debts incurred during the marriage are typically considered marital debt, regardless of which spouse's name is on the account. This includes mortgages, car loans, credit card debt, personal loans, and any other liabilities accrued during the marriage. Separate Debt: Debts acquired before the marriage or after the separation are generally considered separate debt and may remain the responsibility of the spouse who incurred them. However, if separate debt was used for marital purposes, such as household expenses or joint purchases, it may be subject to division. Joint Debt: Loans or credit accounts held jointly by both spouses are equally the responsibility of both parties. Even if only one spouse benefited from the debt, both are still liable for repayment. Joint debts can include joint credit cards, joint bank accounts, or co-signed loans. During divorce proceedings, the division of debt can be negotiated between the spouses or decided by a judge. Ideally, divorcing couples should aim to reach a mutually agreeable arrangement through mediation or collaborative divorce to maintain some level of control over the outcome. However, if an agreement cannot be reached, the court will intervene and make decisions based on state laws and the specific circumstances of the case. Factors Considered in Debt Division: Income Disparity: If one spouse earns significantly more than the other, the court may allocate a larger share of the debt to the higher-earning spouse to ensure both parties can maintain a similar standard of living post-divorce. Financial Contributions: The court may consider each spouse's financial contributions to the marriage when dividing debt. This includes income earned, assets brought into the marriage, and non-monetary contributions such as homemaking or childcare. Marital Misconduct: In some cases, marital misconduct such as financial infidelity or excessive spending may influence the division of debt. For example, if one spouse recklessly incurred debt without the other's knowledge, the court may assign a greater share of the debt to that spouse. Future Financial Needs: The court may take into account each spouse's future financial needs, especially if one spouse requires financial support due to health issues or caregiving responsibilities. Once the division of debt is finalized, each spouse is responsible for their allocated share of the debt. It's essential to take proactive steps to manage and address the debt to avoid negative consequences such as damaged credit scores or legal actions by creditors. Some strategies for managing debt post-divorce include: Refinancing or Transferring Debt: If feasible, spouses may consider refinancing joint loans or transferring debt to individual accounts to remove the other spouse's liability. Negotiating with Creditors: It may be possible to negotiate with creditors to modify payment terms or settle debts for a reduced amount, especially if financial circumstances have changed due to divorce. Creating a Repayment Plan: Developing a structured repayment plan can help manage debt effectively. Prioritize high-interest debts and consider consolidating multiple debts into a single, more manageable payment. Seeking Legal Advice: Consulting with a financial advisor or attorney specializing in divorce can provide valuable guidance on navigating debt division and developing a strategy for managing debt post-divorce.  In conclusion, debt division is a critical aspect of the divorce process that requires careful consideration and negotiation. Understanding the types of debt, factors influencing division, and options for managing debt post-divorce can help spouses navigate this aspect of their separation more effectively. By working together or with the assistance of legal and financial professionals, divorcing couples can achieve a fair and equitable resolution to their financial obligations, allowing them to move forward with their lives independently.

May 9, 2024

Family Law

What are Capital Gains, and How can Capital Gains impact my divorce?

Capital gains are the profits realized from the sale of assets such as stocks, bonds, real estate, or other investments. When an asset is sold for more than its original purchase price, the difference represents a capital gain. These gains are subject to taxation, but the amount of tax owed can vary depending on several factors, including the length of time the asset was held and the individual's tax bracket. In divorce cases, capital gains may become a significant consideration when dividing marital assets. Generally, the division of assets in a divorce is based on the principle of equitable distribution, which does not necessarily mean equal distribution but rather what is deemed fair by the court. When it comes to capital gains, there are several key factors to consider: Date of Valuation: The valuation date of assets can significantly impact the division of capital gains. In some jurisdictions, the valuation may be set at the date of separation, while in others, it may be set at the date of divorce. The choice of valuation date can have implications for the calculation of capital gains and the subsequent division of assets. Tax Implications: It's essential to consider the tax implications of dividing assets with capital gains. Transfers of assets between spouses incident to divorce are generally not subject to capital gains tax at the time of the transfer. However, the receiving spouse will inherit the original cost basis of the asset, potentially leading to higher capital gains taxes when the asset is eventually sold. Qualified Domestic Relations Order (QDRO): In the case of retirement accounts such as 401(k)s or pensions, a Qualified Domestic Relations Order may be necessary to divide the assets without incurring tax penalties. A QDRO outlines how retirement benefits will be divided between spouses, including any potential capital gains tax implications. Professional Assistance: Given the complexity of capital gains taxation and its implications for divorce settlements, seeking the advice of financial and legal professionals is highly recommended. A financial advisor or tax accountant can provide valuable guidance on the most tax-efficient ways to divide assets and minimize capital gains tax liabilities. Understanding how capital gains are treated and the potential tax implications is essential for both spouses to ensure a fair and equitable settlement. By considering factors such as the valuation date of assets, tax implications, and the use of tools like Qualified Domestic Relations Orders, couples can navigate the complexities of capital gains in divorce and work towards a mutually beneficial resolution. Seeking the advice of financial and legal professionals can provide invaluable support in this process, helping to ensure that both parties achieve a fair outcome.

May 9, 2024

Intellectual Property

AI-Generated Works Dilemma: Balancing AI Terms of Service With Contractual Obligations

Like any emerging technology, AI is entangled with legal issues. These legal issues may not make for compelling entertainment, but they are important in shaping the use and potential of AI. The Legal Intelligencer Pop culture generally depicts artificial intelligence (AI) in extremes, from benevolent helpers like Rosie the Robot from “The Jetsons” to malevolent entities bent on humanity’s destruction, like HAL 9000 from 2001 or SkyNet from “The Terminator” movies. While these depictions make for captivating entertainment, they are far from the reality of today’s AI. Like any emerging technology, AI is entangled with legal issues. These legal issues may not make for compelling entertainment, but they are important in shaping the use and potential of AI. While no member of the Jetson household had to accept terms of service before instructing Rosie the Robot, contracts—terms of service—governing the use of AI, such as Dall-E and Midjourney, carry significant implications that users and their counsel should understand. This is especially true when creators utilize AI to generate works and designs for clients. For example, consider the scenario where a furniture store commissions a design firm to create a unique carpeting design that can be used to manufacture carpets to be sold at the store. Looking to expedite the creation of the design, the designer inputs a prompt to their chosen AI tool, which promptly generates a design. Let’s use this scenario as the starting point to explore some pertinent questions. Ownership of AI-Generated Designs Under U.S. copyright law, ownership of designs typically resides with the creator unless they assign their rights to their client in writing (copyright assignments must be in writing; see 17 U.S.C. Section 204). In this case, though, there is another layer. Who owns the work created by the AI? To answer that question, one must turn to the AI’s terms of service. Midjourney’s terms of service state that “User owns all assets they create with the services to the fullest extent possible under applicable law.” (see “Terms of Service,” visited March 9, 2024). Similarly, Dall-E’s terms of service state that “as between you and OpenAI, and to the extent permitted by applicable law, you retain your ownership rights in Input and own the output. We hereby assign to you all our right, title, and interest, if any, in and to output” (see “Terms of Use,” visited March 9, 2024). While such terms may resolve the issue in many cases, they fall short here because the assignment may not have much value. The Copyright Office has determined that copyright in AI-generated work can only be registered if there is a sufficient level of human involvement, although the specific level of involvement remains unclear [see Thaler v. Perlmutter, No. CV 22-1564 (BAH) (D.D.C. Aug. 18, 2023)]. While this ruling may not directly affect the question of ownership, it significantly impacts the enforceability of rights in AI-generated works. AI-Generated Designs Are Not Exclusive When clients hire a designer to create a carpeting design, they often seek an exclusive, original design distinct from designs used by others. In the traditional situation without AI involvement, the contract between the designer and the client typically states that the design will be exclusive to the client, even if the client does not own the copyright in the design. While Midjourney and Dall-E’s terms of service state that the user owns all rights in the AI-generated work, they also contain language giving the AI the right to use that output. Thus, Midjourney’s terms of service state that: by using the services, You grant to Midjourney, its successors, and assigns a perpetual, worldwide, non-exclusive, sublicensable no-charge, royalty-free, irrevocable copyright license to reproduce, prepare derivative works of, publicly display, publicly perform, sublicense, and distribute text and image prompts You input into the services, as well as any assets produced by You through the service. This license survives termination of this agreement by any party, for any reason. Dall-E’s terms of service are slightly less explicit, stating, “We may use content to provide, maintain, develop, and improve our services, comply with applicable law, enforce our terms and policies, and keep our services safe.” The meaning of both provisions is the same: any work created by the AI will be incorporated back into the system and utilized to generate new works in response to new user prompts. While Midjourney offers a potential solution, if users pay a subscription fee, this option only requires Midjourney to use its best efforts to refrain from publishing any output. This scenario raises multiple questions for our carpet designer. If the contract requires exclusivity for the design, AI utilization would seemingly breach this provision. Dall-E’s terms of service acknowledge the potential dissemination of designs to others, noting that “due to the nature of our services and artificial intelligence generally, output may not be unique and other users may receive similar output from our services.” This makes it very difficult, if not impossible, for designers utilizing AI to assure clients of design exclusivity. Further, the Copyright Office’s stance on copyright in AI-generated works means that neither the designer nor the client could sue a third party for infringement if that third party used a design incorporating elements of the AI-generated design. A lawsuit for copyright infringement cannot be brought without a copyright registration, as the U.S. Supreme Court ruled in Fourth Estate v. Wall-Street.com, 586 U.S. ___,  139 S. Ct. 881 (2019). However, as discussed above, the Copyright Office generally does not issue registrations for AI-generated works. What If the AI-Generated Design Infringes on Someone Else’s Work? A standard agreement between a designer and their client typically includes a warranty and representation that the design will be original and noninfringing. However, can a designer who uses AI to create a design genuinely make such a representation? At best, it appears challenging to assert a complete absence of infringement. More than contractual breaches are at stake. The designer’s reputation could be on the line, too, if it becomes known that AI was used to create a design that unintentionally infringed upon another’s work. Taking this a step further, multiple lawsuits are pending alleging copyright infringement because the AI involved in these cases was trained using copyrighted materials. Assuming these allegations are true, it is possible that in response to a designer’s prompt, an AI could generate a work incorporating elements of someone else’s copyrighted material or the entirety of someone else’s material, potentially leading to copyright infringement liability for the designer. The designer could also be liable to those involved in manufacturing the carpet for the store and possible wholesale partners, making the consequences for the designer that much worse. While no such cases have yet emerged in the United States, multiple AI companies have offered to indemnify users against claims of copyright infringement (see “OpenAI offers to indemnify ChatGPT customers for copyright infringement,” visited March 9, 2024). However, the value of such indemnification offers may be limited, especially if the AI companies are flooded with requests and cannot afford to indemnify all users. Furthermore, it remains unclear whether such indemnification from the AI companies would extend to the designer’s client in cases of resale. Although their interests are likely aligned, clients may prefer assurance that their interests will be actively defended. Additionally, the indemnification offered by the AI companies may not cover claims for breach of contract by the client against the designer, leaving the designer potentially liable to their client. Conclusion If Rosie the Robot had to grapple with these contract issues, completing her assigned tasks might have become more challenging (perhaps imposing legal requirements on SkyNet could have prevented its homicidal tendencies). The reality is that we must consider these legal provisions, which can carry significant consequences for AI users, most of whom likely overlook them. One solution is to avoid using AI altogether when creating designs, but this seems increasingly unrealistic with each passing day. Rather, contractual language may have to be updated to account for AI and how it functions. However, this adaptation will require time, and likely involve legal disputes. In the meantime, it’s crucial for all parties, including designers, to recognize the risks associated with using AI. Reprinted with permission from the April 16, 2024, edition of The Legal Intelligencer © 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.

May 1, 2024

Labor and Employment

FTC's Final Rule: Understanding the Ban on Non-Compete Clauses

On April 23, 2024, the United States Federal Trade Commission (FTC) announced its final rule on non-competition clauses, voting 3-2 to adopt the final regulations, known as the “Non-Compete Clause Rule.” This rule marks a significant milestone, establishing a comprehensive ban on non-compete agreements. The decision comes fifteen months after the FTC released its proposed rule in January 2023. The final rule will not take effect until 120 days after publication in the Federal Register, and lawsuits have already been brought challenging the authority of the FTC to issue such a broad rule. Nonetheless, it is crucial for employers to understand the broad requirements, the exceptions, and how to protect legitimate business interests in the wake of the FTC’s rule.   The rule applies to all businesses and individuals within the FTC’s jurisdiction, which covers all types of companies in nearly all industries. However, certain entities fall outside the FTC’s jurisdiction and, therefore, are exempt from the ban. These include banks, savings and loan institutions, federal credit unions, common carriers, air carriers, and certain non-profits. The rule restricts businesses and individuals from including non-competition language in future employment agreements, policies, handbooks, or websites for their workers. Additionally, it extends to non-solicitation and confidentiality agreements that function as de facto non-competition agreements. Importantly, this prohibition applies to all workers (not just “employees”), including independent contractors, interns, externs, volunteers, apprentices, and others. According to the rule’s preamble, “it is an unfair method of competition—and therefore a violation of section 5—for employers to, inter alia, enter into non-compete clauses with workers on or after the final rule’s effective date.” Once the rule takes effect, agreements and policies containing non-compete language will become unenforceable, with the only exception being for “Senior Executives.” The rule defines “Senior Executives” as a worker earning more than $151,164 annually and holding a “policy-making position.” Compensation can include salary, commissions, performance bonuses, and any other agreed-upon forms of compensation, excluding benefits or board and lodging. If the individual only worked part of the year, their earned compensation can be annualized to determine whether they meet the threshold. Policy-making positions include the president, CEO, or individuals with authority to make company-wide policy decisions. While “Senior Executives” will not have their non-competes retroactively voided like other workers, the rule prohibits covered businesses and individuals from entering into such agreements with future workers, even if they qualify as “Senior Executives.” Once in effect, the rule will also require businesses and individuals to notify workers of the ban and rescind existing non-competes (except those with senior executives). Model language for an appropriate notice can be accessed at Noncompete Rule | Federal Trade Commission (ftc.gov). Consequently, the bulk of existing restrictions will become unenforceable upon the rule’s enactment. The FTC anticipates the rule will increase employee earnings by at least $400 billion over the next decade. While the rule fundamentally prohibits all non-compete agreements between businesses and their workers, exceptions exist for non-competes between businesses and between the seller and buyer of a company. Specifically, the FTC’s rule prohibits anything that restricts, penalizes, or prevents a worker from pursuing a different job or starting a business after leaving their current job. That includes: Prohibitive terms and conditions expressly saying that a worker cannot get another job, such as with a competitor or embark on a business venture; Terms and conditions mandating financial penalties for workers who get another job or start a business; or Terms and conditions that aren’t labeled as non-competes but are so restrictive that they effectively prevent a worker from getting a new job or starting a business. This may include overly broad confidentiality clauses, which could potentially violate the National Labor Relations Act, Employers are advised to seek guidance from experienced employment counsel to ensure compliance. As noted at the outset, given the extremely broad nature of the rule, legal challenges are anticipated, potentially leading to further delays or permanently preventing the rule’s enactment. We will continue monitoring developments and providing updates accordingly. In the meantime, employers are encouraged to take advantage of this period by: Evaluating and analyzing existing agreements to ensure certain protections are in place in anticipation of the rule’s implementation; and Consulting with trusted legal counsel to devise a communication strategy regarding the notice requirement for impacted workers, ensuring effectiveness and compliance with legal standards. If you have any questions or need assistance with navigating these changes, please reach out to Gabriel Celii and Sarah Goodman

April 25, 2024

Ask Sarah: Navigating Sexual Harassment Complaints- Best Practices for Employers

Dear Sarah, I’ve recently been informed about a troubling situation involving ongoing sexual harassment within our organization. It appears that this behavior has occurred for several months, yet this is the first time it has been brought to my attention. The incidents range from inappropriate actions in the office to unwelcome advances at company-sponsored events and unsolicited messages outside of working hours. This is a serious issue that requires immediate attention. What should my organization do in response to this complaint? Can we really be liable for behaviors outside the workplace, such as at a bar? — HR Rep Unsure of How to Handle Sexual Harassment Investigations in the Wake of the #MeToo movement Good to hear from you, though I’m sorry it is under these circumstances. Conducting a thorough workplace investigation is paramount here. These are serious allegations; employees expect accountability, and the employer is responsible for ensuring a fair and transparent process. Regarding your question about liability for incidents outside of the workplace, such as those occurring at a bar, it's essential to understand that sexual harassment is by no means confined to the workplace. Put another way, it is not required for the harasser to be in the process of rendering his or her job duties at the time the harassment takes place; as long as an employment relationship exists at the time of the conduct, the employer may be liable. While the situation may seem complex, addressing all instances of harassment, regardless of where they occur, is imperative to avoid legal consequences. Failure to do so could leave the organization vulnerable to legal consequences. Below, I've outlined key steps for conducting a comprehensive investigation. Conduct Timely Investigations: Addressing workplace issues and complaints promptly is essential. Offering multiple reporting avenues to ensure the complainant feels comfortable coming forward and encouraging open communication can help mitigate reporting delays. Create an Investigation Plan: Developing a clear plan that outlines the complaint’s nature, investigation scope, and the involved participants is crucial. Consider whether the investigation will be privileged and designate the investigator. This ensures focus and efficiency, allowing flexibility if needed while maintaining the structure for a complete investigation. Determine the Investigation Scope: Clearly defining the goals of the investigation, such as ensuring fairness and reaching a resolution, is essential. Specify the scope by detailing the specific questions the investigation aims to address, maintaining focus and clarity. Avoid legal inquiries (i.e., was the complainant subject to a hostile work environment) and instead focus on factual aspects, such as determining if the complainant received unwelcome advances from a supervisor at the company holiday party. Gather and Preserve Relevant Documents: Collecting and maintaining relevant documentation throughout the investigation process is vital. This includes policies, witness statements, and any other pertinent information. Before interviewing any witnesses, the investigator should begin to gather, assemble, and review relevant documents that will eventually form the investigation file. Continuously update the investigation file as new documents become available. During witness interviews, take detailed notes, documenting observations and conversations with clear and descriptive language. Details such as body language and specific incidents should be included to provide a comprehensive overview. Finalize the Investigation File: Whether conveying the investigation findings through a written report or informal communication, it is crucial to ensure that all parties involved receive the information. There are some instances where a written report may not be wise; you should consult with counsel before determining how to conclude the investigation. Additionally, preserving the investigation file separately from personnel records ensures accessibility and confidentiality. It is also essential to securely store relevant communications, notes, and documents in a central repository. By following these steps and maintaining transparency throughout the process, the employer can uphold the integrity of its organization and provide a sense of fairness to all involved parties. If you have any further questions or concerns about conducting internal investigations, please don't hesitate to reach out. Blog Disclaimer: The information provided in this blog is for general informational purposes only and should not be considered legal advice. Consult a qualified attorney for advice on specific legal issues. 

April 24, 2024

Intellectual Property

Elevating Your Brand: Insights from Bridgerton's Licensing Success

When Bridgerton returns, its influence won’t be confined to the small screen. Now, thanks to a licensing arrangement with Ruggables, you can bring the elegance of Bridgerton into your home. Known for their diverse collaborations with iconic brands like Star Wars, Architectural Digest, Keith Haring, and Jonathan Adler, Ruggables has extended the Bridgerton aesthetic to your home. Since February, Bridgerton rugs have adorned homes, adding a touch of sophistication reminiscent of the beloved period drama. And the collaboration doesn’t stop there – a partnership with Bath & Body Works brought Bridgerton-inspired scents into personal care this past March. Given Bridgerton’s immense popularity, its expansion beyond the small screen should come as no surprise. In fact, it is following a path well-worn by other entertainment giants: licensing. Licensing can be a powerful tool for expanding a brand’s footprint, yet it carries significant risks. While a well-executed licensing program, such as the one that accompanied the release of last summer’s Barbie release, can create the illusion of ubiquity and fuel a seemingly insatiable demand for branded merchandise, it’s essential to recognize that success in licensing is not easily achieved. Behind every triumph lies diligent effort and meticulous planning. The initial step involves figuring out which products seamlessly complement the brand. Bridgerton’s meticulous attention to detail and well-appointed sets, such as Danbury House or Aubrey Hall, coupled with the buzz surrounding the show’s aesthetic, make a collaboration with Ruggable an ideal choice. This partnership effortlessly extends the visual appeal of the show into the homes of its audience. Next up is the crucial step of ensuring that the brand to be licensed is protected, which involves filing trademark applications to protect the mark associated with the goods slated for licensing. Notably, Netflix owns a U.S. trademark registration for BRIDGERTON covering entertainment services. It has a pending application covering an array of goods and services (e.g., cosmetics, electronic devices, jewelry, handbags, home linens, dishware, clothing, toys, and food). However, it is worth noting that rugs are notably absent from this coverage. One of the most critical parts of licensing is finding a partner you can trust (such as Ruggable, which boasts licensing arrangements with other major brands, likely facilitating its collaboration with Bridgerton). Why? Through licensing, you are giving up some control over your brand. It’s imperative to have confidence that your partner will exercise the same care about your brand as you do and that they will work hard to make the license successful. Plus, ensuring they fulfill their obligations under the license, such as making timely payments and adhering to ethical standards like avoiding child labor, is crucial. Remember, your licensing partners are a reflection of your brand; any missteps on their part could tarnish your reputation, especially in the eyes of discerning observers like Lady Whisteldown. Of course, no one has a crystal ball, and unforeseen events can create issues. That is precisely why a well-drafted license agreement is essential to any licensing effort. This agreement should comprehensively outline all the pertinent business terms, including territory, duration, channels of trade, licensed products, royalty rates, and more. Additionally, it should have mechanisms for termination, should such action become necessary. If, for some reason, the license arrangement does not work out, it is the terms of the license agreement that will control the parties’ relationship moving forward. From a brand owner’s point of view, the quality control provisions within a license agreement hold paramount importance. There are several compelling reasons for this. Firstly, the brand owner’s primary objective is to uphold the brand’s reputation by ensuring that licensed products maintain high-quality standards and reflect the brand’s core values. Consequently, license agreements often grant brand owners the authority to approve prototypes and production items. It's imperative for brand owners to promptly provide approvals to avoid disrupting marketing plans. Secondly, failure to exercise quality control could result in what is known as “naked licensing,” which can result in the potential forfeiture of their trademark rights. While a good quality control provision in the license agreement serves as a preventative measure to a naked license situation, the brand owner’s active monitoring of product quality is essential. After all, consumers seeing a brand on a product will assume that the product meets certain standards of quality. And as you know, dear reader, Queen Charlotte can be exacting. This year’s diamond of the licensing season could well be the rug collaboration. If you are seeking to elevate your brand to new heights of success in the upcoming season, I’m here to provide professional guidance in crafting and executing a dynamic licensing program. Let’s work together to ensure your brand shines brighter than ever before in the competitive world of licensing.

April 23, 2024

Family Law

Navigating Passover Travel Challenges in Divorced Families

Passover, a joyous celebration of freedom and renewal, often inspires many Jews to embark on journeys to extravagant Passover programs spanning from Miami to Israel. However, for divorced individuals, these once familiar programs of familiarity and comfort during marriage may now remain unvisited. Travel, particularly concerning custody arrangements, can present complex challenges. Concerns such as international travel or transportation methods may arise, highlighting the importance of a clear understanding of legal rights and obligations. For divorced parents, understanding their legal rights and obligations regarding custody and travel is essential. This often involves establishing a clear custody agreement that outlines each parent's rights and responsibilities concerning the children. In cases of travel disputes or concerns, seeking legal guidance or mediation is often necessary for a resolution. International travel with children adds further complexity due to issues such as passport and visa requirements as well as the potential risk of parental abduction. Many countries have specific laws and procedures to prevent such incidents, often mandating consent from both parents of international travel.  Given the current global climate, with rising antisemitism adding further uncertainty, divorced parents may hold drastically different views on international Passover travel. Effective communication and cooperation between parents are vital, especially when decisions about travel and the well-being of their children are at stake. Open dialogue and a willingness to compromise can help avoid conflicts and prioritize the children's needs.  Navigating divorce-related issues, custody arrangements, and travel requires careful consideration of the legal framework and the best interests of the children. Consulting with legal professionals focusing on family law can provide invaluable guidance and support. If you have any questions or need assistance, please feel free to reach out for a consultation.  Wishing you and your loved ones a Happy Passover.

April 22, 2024

Commercial Litigation

Suing Someone? Five Crucial Factors to Consider Before Proceeding

So, you think you can sue. Maybe you had a contract, and the other side breached it. Or maybe someone owes you money, and you’re ready to go after them. Not so fast. Starting a lawsuit is a big step, and there are many considerations you and your attorney should discuss before you proceed. Here are five crucial things to know and understand before suing someone. Sketch Out a Cost-Benefit Analysis: Lawsuits are expensive. If you’re looking to go after someone for a few thousand dollars, you might want to reconsider it. Attorneys’ fees, court costs, and other expenses quickly add up, and there are no guarantees of success. While the desire for restitution may be strong, avoid rushing into litigation that could potentially worsen your financial position. Assess The Likelihood of Collecting (If You Win): Sometimes, your case is only as good as your adversary’s financial resources. If the other side is going to file for bankruptcy, then it’s likely that even if you win your case, you wouldn’t be able to collect. If bankruptcy is not a possibility and you find yourself among numerous creditors seeking repayment, the probability of receiving the full amount owed to you is notably diminished. Evaluate Your Opponent: If you’re going against a small company or individual, that’s one thing. But if you’re taking on a large corporation, you should assume that they will hire lawyers, pay them well, and make the case a battle of resources. If the amount you’re owed is high enough, this may not be a deterrent, but be prepared to devote a substantial number of resources to the fight. Distinguish Principle from Damages: Many of the most contentious lawsuits are not even that valuable in terms of their outcome. Often, they stem from disputes over what the parties see as right versus wrong or a desire to “send a message” to the other side rather than a clear goal of obtaining damages. There are better ways to achieve these goals than going through the court system. Most lawsuits end in money changing hands rather than the court ordering parties to abide by principles. Although it may be difficult, take a step back from the dispute. Analyze whether there was actual harm for which you can pursue damages. If the dispute primarily revolves around principle, it’s important to reconsider whether a lawsuit will accomplish what you want. Act Quickly: One thing is certain: regardless of the validity of your claims against the opposing party, the clock is ticking. The statute of limitations governing the time frame for filing such claims is running. Once you are out of time to file your claim, you forfeit your opportunity to file your claim. Courts do not make exceptions for late claims, regardless of the circumstances. In conclusion, the decision to pursue legal action through a lawsuit should not be taken lightly. Numerous critical factors must be carefully considered before proceeding, from the financial implications to the likelihood of a successful outcome and collection. As an experienced litigation attorney, I’ve seen firsthand how lawsuits can have significant and far-reaching consequences for the parties involved and their relationships. That’s why it’s essential to approach this decision thoughtfully and in close consultation with legal counsel. Remember, the goal is not to discourage you from seeking justice or the rightful resolution of a dispute. Rather, it's to ensure you make an informed decision that aligns with your best interests and doesn't leave you in a worse position than when you started.

April 17, 2024

Family Law

International Assets and Divorce

The division of international assets during a divorce can be complex due to differing laws and regulations in each country. The process of dividing international assets in a divorce typically involves the following steps: Identification of Assets: Both parties must disclose all international assets, including property, bank accounts, investments, and other assets held abroad. Valuation: The assets must be valued to determine their worth. This can be challenging when dealing with assets in different currencies and markets. Jurisdictional Issues: Different countries have different laws governing divorce and property division. The legal jurisdiction of the assets (i.e., which country's laws apply) needs to be determined. Property Division: Depending on the laws of the jurisdiction, international assets may be divided according to community property or equitable distribution principles. This may include splitting the assets equally or fairly between the parties. Currency Conversion: When assets are in different currencies, they may need to be converted to a common currency for division. Legal Proceedings: Divorcing couples may need to work with legal professionals in multiple countries to resolve issues related to international assets. Enforcement: Once a division agreement is reached, ensuring the enforcement of the agreement across different countries can be complicated. Legal processes may vary by country. Tax Implications: Dividing international assets may have tax consequences in different jurisdictions. Consulting tax professionals familiar with international tax laws is important. Settlements: In some cases, couples may reach a settlement agreement that includes international assets. This can simplify the process and avoid potential conflicts. If you are going through a divorce involving international assets, it's important to seek legal advice from professionals with experience in international divorce and property division.

April 16, 2024