Franchise Law
How to Bring a Franchise Brand to the US
Originally posted 2/3/2015. No content changes. What’s the best way for a successful franchisor outside the U.S. to launch its brand within the U.S.? Here is one suggested approach: Start small. Begin with a test. See what works and what doesn’t work. What are the costs? What are the best sources of supply? Who are the competitors and what do they offer? What prices make sense? What local talent can join the venture and bring U.S. industry expertise? A test will allow the brand owner to modify the system to meet the challenges of the market and then to offer a proven concept when prospective franchisees come into the picture. Form a wholly owned subsidiary in the U.S. to run the test. This will not require franchise law compliance because the U.S. operation is not a franchise. A wholly-owned subsidiary gives the brand owner full control and limits taxes and other liabilities to the U.S. entity. Form the subsidiary as a corporation in the state in which the company’s U.S. headquarters will be located. There is little or no advantage to incorporating in Delaware when the company has no plans to raise capital or go public. Apply for federal trademark registration. The trademark can be owned either by the brand owner abroad or by the U.S. subsidiary. Of course, the mark itself must be available and must make sense in the U.S. market. The experience from the test will facilitate preparation of the operating manual and training program as well as the franchise agreement and franchise disclosure document. The franchise offering will be made by a company to be formed when the documents are close to completion. Just before launching franchise sales, form a new company to be the franchisor. This can be either a corporation or a limited liability company. This entity shields the operating company from the liabilities of the franchise business and usually avoids the need to disclose financial information about the parent company. Have your outside accounting firm prepare an audit of the opening balance sheet of the franchisor entity. This will be required for registration in New York and possibly one or more other states. If you avoid these states, you can phase in the audits over three years. Don’t grant master franchise rights. If you do, the brand owner abroad that grants master franchise rights in the U.S. may be obligated to comply with the federal and state franchise laws and may risk potential liability for violation of those laws by the master franchisee. You can read a more detailed explanation of this process in a paper I recently wrote for offshore franchisors considering U.S. expansion. A number of companies based in various countries that have successfully expanded their franchise brands into the U.S. Here are a few examples: Australia Action Coach – business coaching – www.actioncoachfranchise.com Bark Busters – home dog training – www.barkbusters.com Cartridge World – printer cartridges – www.cartridgeworld.com Canada Proshred – mobile shredding – www.proshred.com Yogen Fruz – frozen yogurt – www.yogenfruz.com Denmark BoConcept – furniture stores – www.boconcept.com England The Body Shop – beauty products – www.thebodyshop.com Germany Engel & Voelkers – real estate brokerage – www.evusa.com Japan Beard Pappa’s – cream puffs – www.muginohointl.com Kumon – after-school enrichment – www.kumonfranchise.com Tom Pitegoff, Tom.Pitegoff@offitkurman.com
November 15, 2023
One Minute of Overtime
Bona Fide Meal Break
Welcome to One Minute of Overtime, where I will share insights on Labor and Employment Law topics, mostly related to minimum wage and overtime compliance issues. Compliance in this area of law is nuanced and technical, so it is critical for employers to audit and adjust their practices to remain compliant, so stop by to stay up-to-date and in-the-know. An employer does not have to pay an employee for time spent on a bona fide meal break. However, to qualify as a bona fide meal break, the employee must be completely relieved from duty and should not be interrupted for thirty minutes or more.
November 15, 2023
Litigation
Legislative Update – What You Need to Be Aware of
During the 2023-2024 North Carolina General Assembly session, which convened in January 2023 and is set to conclude in December 2024, a number of bills were introduced that could greatly affect landlords if passed. In the May newsletter, I discussed House Bill 551 and what its passage could mean for both landlords and renters. In this edition, I will give a brief overview of some of those bills that, if passed, could possibly negatively affect landlords, provide greater clarity regarding existing laws, or reinforce already existing laws. First up is Senate Bill 724. Senate Bill 724. Hotel Safety Issues Related Matters – would help enforce Senate Bill 53 (Hotel Safety Issues), which became law on March 19, 2023. Senate Bill 53 defined transient occupancies as “the rental of an accommodation by an inn, hotel, motel, recreational vehicle park, campground, or similar lodging to the same guest or occupant for fewer than 90 consecutive days.” Senate Bill 724 further addresses transient occupancies by requiring guests to vacate after 90 consecutive days, permitting innkeepers to contact law enforcement to have guests removed, and making it clear that transient occupancies are governed by NCGS Chapter 72 and not 42. Additionally, the bill also permits innkeepers and guests to enter a lease agreement after the 90-day period. Any such agreement will be governed by NCGS Chapter 42. This bill has not yet become law and could possibly not be picked back up during this legislative session. What does that mean for Senate Bill 53 and innkeepers? Will issues arise with enforcing Senate Bill 53? Senate Bill 667. Regulation of Short-Term Rentals – primarily prohibits cities and counties from adopting ordinances, rules or regulations that prohibit the use of residential properties and accessory dwellings as short-term rentals. In the last couple of years, we have seen a drastic increase in the use of short-term rental sites such as Airbnb.com and VRBO.com. Could this be the reason for the introduction of this bill? Senate Bill 633. Mobile Home Park Act – outlines more stringent requirements for mobile home parks. As of right now, mobile home parks are governed by NCGS Chapter 42, just like all other residential rental properties. Passage of this act could possibly make being a mobile home park owner a little more difficult as it includes a number of additional requirements for mobile home parks. House Bill 595. Rental Inspections – prohibits local government from adopting and enforcing ordinances that would require any owner or manager of real property to obtain any permit or permission under Article 11 or Article 12 of NCGS Chapter 160D from the local government to lease or rent residential property or to register rental property with the local government except in limited cases. Senate Bill 553. Landlord-Tenant and HOA Changes – amends NCGS 42-14.1 bar on local rent control regulations and NCGS 42-46 to state that a late fee can only be charged if a rental payment is five or more calendar days late, the first day being the day after the rent was due. Senate Bill 244. Housing Extension – modifies NCGS 42-14 and will require landlords to give 60 days’ notice if they intend to terminate the tenancy regardless of the length of the term (i.e., week to week, month to month, etc.) unless the lease provides otherwise. This bill would also require landlords to give tenants 60 days’ notice of any rent increase. House Bill 208. Low-Income Housing Tax Credit – reenacts Article 3E, Low-Income Housing Tax Credits of NCGS Chapter 105, as it existed immediately before it was repealed in 2015. All these bills are at various stages, some still in the House having passed the 1st reading, others have been referred to the Committee on Rules and Operations in the Senate. All of the bills have seen little to no activity since April and May. The General Assembly (House and Senate) are set to convene on Wednesday, November 29, 2023. What bills do you believe will pass? What bill’s passage do you believe would be most beneficial?
November 14, 2023
Family Law
Understanding Relocation Custody Cases: Navigating Complex Family Legal Matters
Relocation custody cases, also known as move-away cases, arise when one parent desires to move with their child to a new location, typically a significant distance away from the other parent. These cases present complex legal and emotional challenges that affect the lives of all parties involved. Defining Relocation Custody Cases A relocation custody case is a legal matter that arises when a custodial parent, the one with primary physical custody of the child, wishes to relocate to a different geographic area. This can be within the same state or across state lines. The relocation might be due to various reasons, such as a new job opportunity, family circumstances, or personal reasons. These cases can be contentious because the move often results in a significant disruption of the child's life and the relationship with the non-relocating parent. The non-relocating parent, or the one without primary physical custody, may object to the relocation, fearing that it will limit their ability to spend time with the child. Relocation cases can stem from a variety of factors, including: Employment opportunities: The relocating parent may be offered a job or career advancement in a different location, compelling them to consider the move. Family support: A relocating parent may want to move closer to family members or a support network to help raise the child. Safety concerns: Relocation might be driven by concerns about safety, such as escaping an abusive relationship or moving to a safer neighborhood. Educational opportunities: A relocating parent may want to provide their child with better educational opportunities by moving to a region with superior schools or educational programs. Personal reasons: Sometimes, parents wish to relocate for personal reasons, such as wanting to live in a different environment or to start a new chapter in their lives. Legal Considerations Relocation custody cases are highly sensitive, and the courts take various factors into account to make decisions in the best interests of the child. Some legal considerations include: Best interests of the child: The court's primary concern is the well-being of the child. They consider the child's relationship with each parent, the impact of the move on the child's life, and their emotional and physical needs. Parenting plan modification: If the court approves the relocation, it may need to modify the existing parenting plan to accommodate the new circumstances. This could involve changes to visitation schedules and custody arrangements. Notice and consent: The relocating parent typically needs to provide adequate notice to the non-relocating parent and may require their consent to relocate. If the non-relocating parent objects, a court hearing is usually necessary. Burden of proof: In many cases, the burden of proof falls on the relocating parent to demonstrate that the move is in the child's best interests. They must provide evidence to support their reasons for the relocation. Mediation and negotiation: In some instances, parents can resolve relocation disputes through mediation or negotiation outside of court. This can be a less adversarial way to reach a solution. Relocation custody cases are challenging legal matters that require careful consideration of the child's best interests and the rights of both parents. The courts aim to make decisions that provide stability and well-being for the child, while respecting the rights of both relocating and non-relocating parents. It's essential for all parties involved to seek legal counsel and work towards a solution that prioritizes the child's welfare and emotional needs during these often difficult and emotionally charged situations.
November 14, 2023
Family Law
Protecting Your Business During Divorce: Strategies for Business Owners
Divorce is a challenging and emotional process, and it becomes even more complex when you own a business. Your business is not just a source of income but a significant asset that may be subject to division during divorce proceedings. There are some strategies and tips to help business owners navigate the divorce process while safeguarding their business interests. Prenuptial or Postnuptial Agreements If you're a business owner, one of the most effective ways to protect your business during a divorce is to have a prenuptial or postnuptial agreement in place. These legal documents outline how assets, including your business, will be divided in the event of divorce. By establishing clear terms and agreements in advance, you can minimize disputes and protect your business interests. Keep Business and Personal Finances Separate Maintaining a clear separation between your business and personal finances is vital for protecting your business during a divorce. Make sure your business has its own bank accounts, financial records, and tax documentation. Commingling personal and business finances can make it challenging to prove the business's true value. Accurate Business Valuation Accurate valuation of your business is critical during divorce proceedings. It's advisable to hire a professional business appraiser or a certified public accountant (CPA) with experience in business valuation to determine the fair market value of your business. A well-documented and substantiated valuation can help ensure a fair division of assets. Explore Buy-Sell Agreements A buy-sell agreement is a legal contract that outlines what happens to a business if one of the owners goes through a life-changing event, such as divorce. Having a well-drafted buy-sell agreement in place can allow your business partner or co-owners to buy out your spouse's share, helping to keep the business within the hands of those actively involved. Offer Compensation in Exchange for Business Ownership To protect your business, you might consider offering your spouse other assets or compensation in exchange for relinquishing their claim to the business. This can be a complex negotiation, but it can help keep your business intact and mitigate the need for a forced sale or liquidation. Mediation or Collaborative Divorce Consider alternative dispute resolution methods such as mediation or collaborative divorce, where both parties work together with a neutral mediator or collaboratively trained attorneys to find solutions. These processes often lead to more amicable settlements and can be less disruptive to your business. Protect Intellectual Property If your business involves intellectual property, such as patents, trademarks, or copyrights, make sure it's protected. Clearly delineate ownership of these assets in your business agreements and maintain strong records. This can prevent disputes over intellectual property during divorce. Consult with Legal and Financial Experts Seek the guidance of experienced divorce attorneys and financial advisors who specialize in handling divorce cases involving business owners. They can provide tailored advice and ensure you are aware of all legal options and potential financial implications. Protecting your business during a divorce requires careful planning and a proactive approach. By implementing these strategies and seeking professional guidance, you can navigate the divorce process while safeguarding your business interests. Remember that every divorce case is unique, and it's essential to work with legal and financial experts to create a customized plan that suits your specific situation.
November 14, 2023
Franchise Law
SBA-Backed Franchise Lending
Originally posted on October 24, 2018 content updated on November 13, 2023 This blog post may contain information that was accurate at the time of publication but could become outdated over time. We strive to provide relevant and timely content, but circumstances, facts, and data can change. Users are encouraged to verify the current status of any information presented and seek updated guidance where necessary. The U.S. Small Business Association’s loan guaranty program has undergone several changes over the years. The January 1, 2018,rule supersedes changes described in my past blog postings in December 2014 and 2016. A franchisor that wants its franchisees to be able to obtain SBA-backed loans to finance their franchised businesses must be listed on the SBA Franchise Directory.The directory, which is maintained on the SBA’s website, shows to franchisees and lending banks the franchise systems that qualify for SBA-backed lending. To be listed on the SBA Franchise Directory, a franchisor must submit to the SBA its franchise agreement, its franchise disclosure document (FDD), and any other documents the franchisor requires the franchisee to sign. The SBA then undertakes an affiliation review (explained below) and an eligibility determination. If the franchisor uses the SBA Addendum (SBA Form 2462), the SBA will only undertake an eligibility review and will not conduct an affiliation review. For each listed franchise system, the SBA Franchise Directory indicates whether an addendum is needed, and whether that will be the SBA Addendum or an SBA Negotiated Addendum. Franchisors that are already listed on the SBA Franchise Directory and are not using the standard SBA Addendum must recertify with the SBA each year. As used by the SBA, the term “affiliation” relates to the question of whether the borrower is an independent small business. A lack of affiliation is a condition to being eligible for SBA-backed loans. If affiliation exists, the franchisee is not an independent small business as defined in the SBA’s regulations. Affiliation exists when the franchise agreement gives the franchisor excessive control. In order to qualify for the SBA loan program, the applicant must have the right to profit from its efforts and must bear a risk of loss commensurate with the concept of ownership of an independent business. The SBA Addendum establishes the lack of affiliation by stating the following: Change of Ownership The franchisor may exercise an option or right of first refusal to purchase a partial interest in the franchisee’s business only if the proposed transferee is not one of the current owners of the business or a family member of a current owner. If the franchisor’s consent is required for any transfer (full or partial), the franchisor will not unreasonably withhold its consent. Once a transfer takes place, the transferor cannot be liable for the actions of the transferee. Forced Sale of Assets If the franchisor has an option to purchase the assets of the franchised business upon the franchisee’s default or termination of the franchise agreement and the parties are unable to agree on the value of the assets, the value will be determined by an appraiser agreed upon by the parties. If the franchisee owns the real estate where the franchised business operates, the franchisee will not be required to sell the real estate upon default or termination, but the franchisee may be required to lease the real estate for the remainder of the term of the franchise agreement (excluding additional renewals) for fair market value. Covenants If the franchisee owns the real estate where the franchised business operates, the franchisor must not record against the real estate any restrictions on the use of the property. If any such restrictions are recorded against the franchisee’s real estate, they must be removed in order for the franchisee to obtain SBA-assisted financing. Employment The franchisor will not hire, fire or schedule the franchisee’s employees. For temporary personnel franchises, the temporary employees will be employed by the franchisee, not the franchisor. The SBA Addendum is a form that calls for blanks to be filled in. The text of the addendum may not be altered. Franchisors listed on the SBA Directory that do not use the standard SBA Addendum or who are using an SBA Negotiated Addendum and who do not want to begin using the SBA Addendum, must submit to the SBA each year the “Annual Franchisor Certification” stating that the terms of the franchise agreement have not substantively changed and that no changes have been made to the SBA Negotiated Addendum. If there has been a change, the franchisor must resubmit its franchise documents to the SBA for review. The annual certification requirement ends only if the franchisor begins using the standard SBA Addendum. The opportunity to avoid an annual SBA affiliation review is one reason, then, for a franchisor to use the standard SBA Addendum even if the franchisor’s standard franchise agreement already contains the provisions of the SBA Addendum. If a franchisor is willing to use the standard SBA Addendum, it might actually make sense for the franchisor to change its standard terms to include the provisions of the SBA Addendum. For one thing, some franchisees may be unhappy with the fact that only those franchisees who seek SBA-backed loans receive the benefits of the SBA Addendum. Other franchisees will certainly learn about franchise agreement terms offered to some but not all franchisees, and this difference might cause discord. In addition, including the terms of the SBA Addendum in a franchisor’s standard franchise agreement can reinforce a franchisor’s position that the franchisor is not a joint employer of the franchisee’s employees and that the franchisor is not liable for the franchisee’s negligence or wrongdoing. After all, as the SBA sees it, these provisions prove that the franchisee bears a risk of loss commensurate with the concept of ownership of an independent business. Before the SBA established the SBA Franchise Directory, a company called FRANdata maintained the Franchise Registry, the forerunner to the SBA Franchise Directory. FRANdata continues to maintain its Franchise Registry. While being listed on FRANdata’s Franchise Registry is not required in order for a franchise brand to be eligible for SBA financing, FRANdata does offer assistance to franchisors and more information to prospective lenders than a listing on the SBA Franchise Directory. As a private company, FRANdata charges a fee to franchisors for its services. Tom Pitegoff, Tom.Pitegoff@offitkurman.com
November 13, 2023
Estates and Trusts
Discretionary Trust Distributions – When “Because I said so!” May Be Legally Sufficient
Not too long prior to Senator Diane Feinstein’s recent passing, her daughter, exercising a durable power of attorney (POA) for the ailing Senator, filed suit seeking to force payments by the trustee of what is described as a very generously endowed trust fund (by the Senator’s late billionaire husband) reported to include provisions to cover expenses related to the Senator’s health and welfare. So many directions to take this one! This single-sentence summary presents so many potentially valuable legal nuggets to mine! . . . from “What’s a durable POA?” to “What possible good-faith basis could the trustee have for refusing to pay/reimburse for medical/healthcare expenses with funds entrusted to his/her oversight for this very purpose?” I’ll leave the durability question to Siri and Google, noting that with the adoption in states such as Virginia of what is known as the Uniform Power of Attorney Act (or “UPOAA”), powers of attorney are now presumptively durable unless expressly indicated otherwise in the document itself. Before moving on, I’ll also add that a POA need not require the incapacity of its principal/maker to empower the agent/attorney-in-fact to act on the principal’s behalf. Many people mistakenly presume that a POA is intended only to take effect upon the incapacity or incapability of the principal to act on one’s own behalf. POAs can be immediately effective or “spring” into effect if and only when specifically defined events occur, which define the circumstances when the agent’s authority springs to life on behalf of the principal. Without conducting any sort of formal study on the subject, I am confident when I say that springing POAs are by far the exception to the norm. For now, at least, I address myself to the meatier issues stemming from the late Senator’s trustee’s alleged breach of fiduciary duties and general malfeasance. Asked for my opinion about this “obviously-in-the-wrong” trustee after news of the legal action broke (because no one would go to the trouble of filing suit if the allegations weren’t true, right!), I instinctively provided my standard go-to, why-everyone-hates-lawyers response: “It depends!” With little more than the headline as fodder for a good cocktail party debate, any substantial opinion must necessarily depend on so many variables that any other conclusion about the merits of such a case should be presumed fiction (with similar presumptions regarding anyone who would be willing to draw any definitive conclusions about the impropriety of the trustee’s actions, motives, etc. on such scant information). For starters, the outcome of any such case and claim(s) totally depends on the precise language of the trust document governing the specific situation and the scope and extent of the authority such language extends to the trustee. Because the “correct answer” is so driven by the fact-specific trust language, it is truly pointless to speculate on whether the trustee should or should not have paid the particular expenses in the Feinstein situation. It is also precisely why two or more seemingly identical cases can produce seemingly equally contrary results. It is not necessarily true that one judge or jury gets it exactly right while another gets it completely wrong. Nearly identical facts can produce widely disparate legally correct results for a myriad of reasons. [For a separate case study on this issue, check out my co-authored piece on two seemingly identical cases resolving disputed beneficiary designations in the context of divorce-related life insurance obligations: “Same facts . . . opposite results!”] All that having been said, it is not uncommon for such trusts to build in not only a certain level of discretion for the trustee to decide when it might be appropriate to pay and when a particular expense might be unreasonably “over the top” or simply unnecessary. With such built-in discretion, the trustee has effectively been entrusted by the maker of the trust to act in a manner as to reach the closest equivalent to what the maker himself or herself might have decided. Under these circumstances, the trustee is essentially in the right simply because they said so. A court will generally not seek to impose its discretion over that of the individual the now deceased trust maker trusted in the first instance to make what the trustee determines to be the best decision. With this outcome in mind, I commonly encounter provisions bestowing on trustees the ability, or even the requirement, that before releasing any funds from the trust for expenses seemingly word-for-word covered by the trust, the trustee consider and/or “take into account” other resources available to the beneficiary. In this way, the trustee is forced to exercise fiduciary responsibility not only to the current trust beneficiary but also to those who would stand to benefit from the trust after the current beneficiary has passed. Then again, it might very well be that the scope of such authority is less than clearly defined in the trust document or that a trustee with an axe to grind and/or a personal agenda contrary to that of the beneficiary (perhaps favoring future beneficiaries over the current beneficiary, for instance) is, indeed, acting in a manner inconsistent with the trustor’s original intent. In either case, a court order might be needed to provide appropriate “aid and direction” to the trustee or forcing the trustee to act in a manner not otherwise abusing the discretion afforded to the trustee. One simply cannot presume to conclude as much from a news report, nor should one draw conclusions regarding either the trustee or the one bringing such an action against a trustee without knowing all the relevant facts – or at least substantially more of them than might be reportable in a 60-second, news soundbite. In one rather extreme example, I encountered an example recently where a trustee was empowered to provide for the health and welfare of the beneficiary, but only out of trust income (no principal) and if and only if the beneficiary passed a monthly drug test, the cost of which could be paid out of the trust income, but consequently serve to reduce the amount to be paid to the beneficiary. Whether to bring and/or how to defend such an action requires appropriate legal experience, understanding, and, consequently, investigation and analysis of as much relevant information as can be gleaned both from what might be readily available and that which might take some digging to uncover. In my experience, whether one or more valid claims exist in such situations requires significant investigative and analytical time and should not be presumed either a simple or inexpensive process nor one which is likely to lead to an unimpeachable, singular conclusion. I have observed, advised, and/or been involved to varying degrees in numerous such disputes representing various perspectives with differing agendas (consider, for instance, how a second or third-generation, non-profit charitable organization set up as a contingent beneficiary might view as a wasteful fiduciary breach of duty any payouts by a trustee to current beneficiaries with substantial independent wealth and the means to pay their own expenses). I would welcome the opportunity to evaluate the possibility of assisting should you find yourself on one or the other side of such a situation (or perhaps as a drafting attorney seeking to minimize the chances of such a dispute down the road).
November 13, 2023
Litigation
Same Material Facts . . . Opposite Results?
The Western District of Virginia's Hartford Life v. Herring case outcome doesn’t track with the Virginia Supreme Court’s Wood v. Martin decision . . . or does it? In a recent decision by the Roanoke Division of the United States District Court for the Western District of Virginia, Hartford Life and Accident Insurance Co. v. Herring, the parties disputed the rightful recipient of insurance policy proceeds but were at least able to agree that the separation and property settlement agreement at issue was governed by North Carolina law. In seemingly all material respects, the facts of the Herring case mirrored those of the Virginia Supreme Court’s 2020 decision in Wood v. Martin. Yet, with the Court’s application of North Carolina law, the outcome of the case is in direct conflict with the Wood v. Martin results. Or is it? In Wood v. Martin, the Court held that by operation of Virginia law, Ms. Martin, as the ex-wife, was the rightful 50% beneficiary of her ex-husband’s life insurance policy. The ex-husband’s beneficiary re-designation days before taking his own life, by which he removed her from the policy, was in direct conflict with his contractual and consensually court-ordered obligation to her. The Court agreed with Ms. Martin that under Virginia law, the terms of the divorced couple’s agreement (as incorporated into their consensual divorce decree) requiring that he designate her as the life insurance policy beneficiary effected a written assignment of his contractual right with the life insurance company to change his beneficiary designation, and, consequently, he remained bound to maintain Ms. Martin as the 50% beneficiary of the policy. In Hartford Life v. Herring, the Western District applied North Carolina law to strikingly similar facts to reach the opposite result. The Roanoke federal court faced the situation in Herring where a divorced couple’s post-nuptial agreement had stated that the ex-husband was to retain ownership of his life insurance policy, free and clear from any claim by his ex-wife, presumably bargained for to afford him carte blanche to designate anyone he wanted as his policy beneficiary. When the ex-husband died a few years later, it was discovered that he had never removed his ex-wife as the primary beneficiary of the policy. The Western District acknowledged that under North Carolina law, the failure of a spouse to change the beneficiary ordinarily indicates that he or she did not intend to effect such a change. The Court found that the separation agreement did not sufficiently clearly express the policy owner’s intention to alter beneficiary status (notwithstanding the language about the policy being consensually free and clear from any claim of ownership by his ex) and, therefore, did not constitute an assignment of such interest. Consequently, the Court refused to “blue pencil” the policy’s beneficiary designation to match the stated intentions of the divorced couple’s post-nuptial agreement. With directly opposing outcomes, in such strikingly similar cases, one might simply presume the results were dictated by differing state assignment laws. On closer inspection, one or more other factors might have led to such seemingly contrary findings and conclusions. One possibility is that, perhaps, both courts simply applied an “ends justifies the means” approach to decision-making to fashion a remedy and result favoring an otherwise aggrieved ex-spouse. While attractive at first, with both cases resulting in arguably otherwise aggrieved ex-spouses awarded the life insurance proceeds, this justification seems unlikely. From all outward appearances at least, the Herring policy designee stood to receive an apparent windfall contrary to the outcome for which she’d bargained in the couple’s post-nuptial agreement. Instead, perhaps the facts of the cases differ materially in a non-obvious way? Perhaps the results were driven by specific language in each of the agreements, highlighting more than an innocuous distinction. As it turns out, ownership of a policy is not synonymous with the right to dictate who receives the proceeds thereof. It is true that legally speaking, one with ownership of a policy generally maintains the right to designate beneficiaries of that policy. The Woods v. Martin court recognized an exception to this general rule when one contractually obligates oneself to maintain a particular designee. The Hartford Life v. Herring court was not asked to consider the same contractual obligation, but rather, the apparently unequivocal waiver by the would-be designee to claim an ownership interest in the policy. Considered from these differing perspectives, ownership of the policies in each case went unchallenged, whereas the obligation to designate a particular someone in the former case contrasted materially from the unfettered right of the owner in the latter case to designate anyone he wanted. Then again, perhaps the differing outcomes can be explained factually but less legalistically. After all, simply stated, in the former case, Ms. Martin was awarded with what her deceased former husband had contractually promised to do for her. In the latter situation in Herring, the court’s decision let stand the decedent’s beneficiary designation, which, despite having negotiated for himself the exclusive right to designate anyone he wanted as his beneficiary -- which right he then could have exercised any time he wanted! -- for reasons he apparently took to his grave, he never did. Perhaps it was merely an oversight by the deceased policy owner, or perhaps it was a conscious decision on his part. We’ll clearly never know. We do know, however, that merely because he could change the policy beneficiary did not legally dictate that he must do so. Without language in the post-nuptial agreement expressly directing him to take particular action regarding the beneficiary designation, as in Woods v. Martin, perhaps this is a sufficiently material factual distinction justifying an opposite result without regard to the law of assignments in either North Carolina or Virginia. Seen in this light, the Woods v. Martin and Hartford Life v. Herring decisions make perfect sense! So, when does it make sense that the same material facts lead to opposite results? Certainly, one option is that the law differs from state to state. In this situation, however, another option appears to be that no matter how strikingly similar the facts of the two cases, they differ materially in more ways than one – sufficiently so much as to dictate opposite results and, consequently, leaving unresolved the issue as to the extent to which the law of assignments in this context actually differs between the two states. Thoughts?
November 9, 2023
Business
Newly Enacted Requirements for Disclosure of Beneficial Ownership of US Business Entities
Originally posted on 02/21/2021, content updated 11/08/23. Congress has passed legislation over the veto of former President Trump to require the disclosure of the direct or indirect beneficial ownership of US business entities at the time of formation. This legislation was included as part of the annual National Defense Appropriations Act, which took effect on January 1, 2021. Under this Act, upon the issuance by the Department of Treasury of regulations providing more detail on the specific requirements of the Act, all corporations, limited liability companies and other types of business entities will be required to disclose the details of their direct and indirect beneficial owners at the time the business is formed unless the business falls within a group of exempt industries. These exempt industries include banking, insurance, and other financial institutions, where the disclosure of beneficial ownership of such businesses is generally already required. In addition, within 2 years of the issuance of the regulations, the same disclosure requirements will apply to all existing non-exempt industry business entities, except those which are publicly traded or have more than 20 full-time employees, have annual revenues of more than $5 million, and have an operating presence at a physical office within the United States. The Treasury regulations must be published within one year of the effective date of the Act or by January 1, 2022, but are expected to be published sooner. The Act requires such reporting companies to submit the disclosure information to the Department of Treasury, which is required to create a beneficial ownership registry within its Financial Crimes Enforcement Network (FinCEN). The purpose of the registry is to “crack down on anonymous shell companies, which have long been the vehicle of choice for money launderers, terrorists and criminals.” The information will not be made available to the public in general but will be available to US federal law enforcement agencies and, with the consent of the reporting company, financial institutions in order to meet their customer due diligence requirements. The Act defines a beneficial owner as an individual who owns a 25% equity interest in or exercises “substantial control” over the reporting company. The definition of substantial control is not stated in the Act, and there are many other questions regarding the scope of the disclosure requirements, including how to measure a 25% equity stake in a tiered group of entities or in an entity which has shifting percentage interests of its members. Presumably, these and other issues arising under the Act will be clarified in the regulations. The information that must be reported to the registry includes the following with respect to any beneficial owner, as well as any “applicant” for the entity (which includes incorporators and other formation agents): (i) full legal name, (ii) date of birth, (iii) residential or business street address, and (iv) a unique identifying number from an acceptable identification document, including a driver’s license, US passport, or other US state-issued identification document. Further, any changes to the beneficial ownership of a business entity or any change to any of the foregoing information must be reported to the registry within one year of the change. The Act imposes penalties on companies that fail to report the required information or submit a report containing false or fraudulent beneficial ownership information of $500 per day up to a maximum of $10,000 and imprisonment of up to 2 years. The Act represents a sea change in the US requirements for beneficial ownership disclosure of business entities. Similar or even more restrictive ownership disclosure requirements have been in place for several years in Europe and other developed nations throughout the world. We will be monitoring the issuance of the Treasury regulations and other developments in this area. Please feel free to contact us with any questions. Final regulations under the Corporate Transparency Act were issued on September 30, 2022, which provide for the implementation of the Act commencing January 1, 2024. See separate blog post – “FinCEN Issues Final Rule for Beneficial Ownership Reporting under the Corporate Transparency Act.”
November 8, 2023
The Practice of Law
Jury Duty (Part Three): From Voir Dire to Deliberations to . . .
Originally posted on 03/05/20, content updated on 11/07/23 “Ladies and Gentlemen of the jury, please stand and raise your right hand to be sworn. Do you solemnly swear to be fair and impartial to uphold the Constitution and laws of The Commonwealth of Virginia to the best of your ability?” And with a resounding chorus of “I do’s,” we — the chosen few! – are asked to be seated and prepare for what is to be a several-day journey through dramatic opening statements, myriad facts and witnesses, emphatic legal “Objections!” (sustained and overruled), rousing closing arguments, and methodical instructions from the judge, before heading off to what was to become our own special home-away-from-home for the next several days for our “deliberations” as we were to decide the fate of the accused – alleged to have embezzled an insane amount of money from a former employer’s operating account (apparently not as uncommon as you might think! Note to self – review A/P payment approval process!). I had been called to serve – my first time ever! – called for jury duty in Fairfax County Circuit Court. Unlike many of those I’d joined in the jury assembly room that fateful Monday morning, I was excited and hopeful of being selected to serve on a jury. Seeing and experiencing first-hand a juror’s perspective of what it is I do for a living in the courtroom as a trial attorney from the other side of counsel’s table and behind the rostrum is something very few litigators ever get a chance to experience. (I’ve only met two over my career that have shared the experience.) There are any number of big screen and small screen representations of what goes on behind closed doors but, as I’ve previously noted and explained, it is a relative rarity for a litigator to experience the actual inner workings of the jury room. So this was, indeed, an exciting day! “Voir dire,” the part of the pre-trial process where the judge and the attorneys ask potential jurors a bunch of seemingly random unrelated questions designed to help the attorneys decide who the best jurors will be (or at least who they most definitely don’t want on the jury, if they can help it) was surprisingly and disappointingly uneventful. The only real surprise was that neither side felt compelled to dismiss or “strike” me as a juror (each apparently believing that having a civil litigator on the panel would be somehow beneficial to their cause). If you’ve seen the CBS TV show “Bull” for instance, you know there is a whole science (art?) to this evaluative process. There is a large “cottage industry” of jury consultants out there willing to take desperate people’s money to avoid conviction. This, however, was definitely not one of those cases. Opening statements were matter-of-factual and methodical (classic “tell ‘em what your gonna tell ‘em” lead-in’s). Witnesses were relatively “vanilla” providing, mostly at least, “just the facts, ma’am!” There was a big flourish of an “OBJECTION!” at one point after some seemingly irrelevant but salacious testimony, but a quick “Sustained!” from the judge mooted the need for the Commonwealth’s Attorney (the state’s prosecutor) to respond, and she simply continued as if nothing had even happened. Witness after witness, mundane direct exams followed by somewhat more spirited cross-examinations, frequent breaks and lunches (many more than I generally take in a week!), judicial admonitions not to talk to anybody about the case, all culminating in relatively flamboyant, definitely more emotional, closing arguments including the defense attorney’s impassioned insistence that the Commonwealth had failed to prove its case beyond a reasonable doubt and, somewhat surprisingly actually, of his client’s having done nothing wrong, etc. before the judge turned to us to read carefully crafted instructions and sent us out with reminders of our oaths and duty to our fellow citizens and community. We pick a foreman (or forewoman, in this case), take a single unanimous vote; watch the “guilty” verdict get read in open court, watch further as the defendant – clearly shocked by the result – get cuffed and lead by Sheriff’s Deputies (a couple of Fairfax County’s finest!) through a special side door in the courtroom (leading to the special prisoner elevator and back hallway system in the courthouse most people never get to see; receive an appreciative “thank you” from the trial judge; collect all our belongings, shake hands, exchange pleasantries (and a couple business cards!) with fellow jurors, and unceremoniously head back to our respective lives. At least that’s what I had hoped would be my first juror experience. If you remember back to Jury Duty 2, I left off waiting for the Sheriff’s Deputy to come back to bring my group of jurors to our assigned courtroom with me looking forward in anxious and excited anticipation to my first “voir dire” as a prospective juror. In fact, when the Deputy eventually did return, after we were forced to sit and wait in the jury assembly room for nearly another hour or so, he thanked us for our service and summarily dismissed us. That was it. We were done. There would be nothing further required of us. Thanks for playing; there will be no parting gifts, and you won’t be getting a copy of the “home game” (a la television game shows of the ’80s). The Deputy couldn’t tell us how “our” case had been resolved or even the type of case to which we had been assigned – either because he truly didn’t know or simply knew better than to engage us down that path of inquiry. Regardless, there would be no voir dire, not for me . . . not that day. There would be no empaneling, no opening nor closing, no objecting nor sustaining, no deliberating nor convicting. Jurisdictions handle jury service differently with some having continuing obligations in the event one is dismissed as I was that day — not Fairfax County, however. In Fairfax County one fulfills one’s jury duty service by timely presenting at the courthouse and making oneself available to serve just as equally as those fortunate enough to be selected and empaneled on a jury. If you’ve been fortunate enough to have served on a jury, I thank and envy you for your service. You help the legal system function, and it is better because of you. Drop me a line . . . I’d love to hear your story. For me, I fear, it is like the elusive hole-in-one I may never achieve.
November 7, 2023
Litigation
The “Omnibus Order” - “Mutually Beneficial ‘Kitchen-sinking’” | Part One
Originally posted on 04/23/20, content updated on 11/07/23 “MBKS” or Mutually beneficial “kitchen-sinking.” It’s a thing. . . . No, seriously, it is totally a thing! Well, it should be! I credit opposing counsel in a substantial life insurance claim litigation for having suggested that in a single order we might have the court nonsuit (voluntarily dismiss) some claims; nonsuit some arguably interested parties; allow and approve both interpleading of funds and partial payouts of non-interpleaded funds; conditionally dismiss the interpleading party; and generally streamline the pending case to the core factual/legal issue(s)/matters about which the remaining principal parties would be left to dispute. “Not possible,” I was confident. “No way a judge signs off on all that in a single order.” I was willing to try it, of course,–this “omnibus order” approach, as I had dubbed it, where we would toss in everything but the “kitchen sink”–in hopes of achieving all of the above in inconceivably record time. “Doubting Thomas” that I am, however, I had little expectation of this actually working and was confident it would only end up serving to add costs and delay unnecessarily to all of the procedural and substantive agreements we’d negotiated. I waited for the inevitable call to come from the law clerk informing counsel that there were certain rules and procedures to be followed for these sorts of things, and asking (but not really asking) if I would we be so kind as to file the appropriate multitude of motions to be heard at the proper times on succeeding Fridays, etc. . . . etc. But, as you’ve no doubt already discerned, the call never came. The omnibus order was entered, and, as if having just scored an unexpected “Fast Pass” at Disneyworld, we shot to the front of the litigation roller-coaster line short-circuiting much of the anticipated pre-trial delays. Attorneys, litigators in particular, are typically paid really well to know the law (or at least how to figure it out when and as necessary in a given situation!), and compensated even better if able to apply it effectively to their clients’ advantage. Mutually beneficial “kitchen-sinking” is about saving clients’ time and money. Adversaries willing to resolve multiple substantive and procedural matters in a single omnibus order well-serve their clients and, concomitantly, the legal system (by helping keep dockets unclogged and access unfettered) and themselves, “…to the extent one’s reputation among both future adversaries and potential future clients is immeasurably impacted by one’s own choices.” The best litigators know and apply the law to their clients’ substantive advantage with a time and cost efficiency that avoids results where “only the lawyers win,” because these lawyers understand that a pyrrhic victory is no victory at all. One would be wise to remember that, to one’s client, “winning at all costs”–whether or not one’s client appreciates it at the time!–is typically tantamount to a loss. #MBKS!
November 7, 2023
Franchise Law
Structuring a Multi-unit Franchise
Originally posted 7/25/2017, no content changes. A multi-unit franchise owner can structure its operations in a number of ways, but one approach in particular often makes a lot of sense: a developer entity that acts as the parent company for the individual franchise locations. First some background. Many franchisors seek out franchisees who want to open three or more units. One approach is to sign a development agreement in which the developer commits to open an agreed-upon number of franchise units in a defined territory over a specified period. In exchange, the franchisor agrees not to open a company-owned unit or to grant a franchise to anyone else in that territory while the development agreement remains in effect. In most franchise systems, the developer opens each franchise under a separate franchise agreement. The multi-unit developer typically signs the development agreement and the first franchise agreement at the same time. Each subsequent franchise is then opened pursuant to a separate franchise agreement. The development agreement typically ends when the developer signs the franchise agreement for the last franchised unit promised in the development schedule. Territorial exclusivity in the development agreement ends, but the more limited territorial protection in the individual franchise agreements remains in effect. One approach: form a developer entity One approach that can work well for a typical multi-unit franchisee is to form a limited liability company (“LLC”) to sign the development agreement and act as the parent company for each individual unit entity. For illustration purposes, let’s call this parent company the “Developer LLC.” Each franchise would be owned and operated by a separate “Franchisee LLC” under its own franchise agreement, and the Developer LLC would be the sole member of each Franchisee LLC. From a tax point of view, each LLC would be a pass-through entity so the profits or losses of each Franchisee LLC would become the profits or losses of the Developer LLC and, in turn, of its member or members. This structure has several advantages over using a single franchisee entity. Benefits for the Developer LLC include the following: It limits the Developer LLC’s liability with respect to each franchised unit to the amount invested in that unit. The Developer LLC’s operating agreement can facilitate investment in the Developer LLC by new members. The operating agreement of each Franchisee LLC can facilitate investment into that particular franchise by new members. For example, a Franchisee LLC might want to give its operations manager for that specific unit an ownership interest in that entity in order to reward and motivate the manager. The Developer LLC can employ people to provide common services to all or some of the unit franchises, so that they are not bound to a specific unit. The Developer LLC can more easily sell off or close down one or more of the Franchisee LLC units. Each Franchisee LLC can more easily report its revenues separately and accurately. This structure also has benefits for the franchisor: The franchisor can easily track the performance of each franchise unit individually, as financials and tax records are prepared separately for each Franchisee LLC business. It simplifies the franchisor’s right of first refusal on the sale of a Franchisee LLC business. It facilitates the termination or nonrenewal of one franchise agreement without terminating others. Variations and related considerations To facilitate the use of individual franchisee entities, franchise agreements commonly contain provisions that require the franchisee entity to state in its organizational documents that its activities are confined solely to owning and operating the franchised business. Franchisors commonly require the owners of a franchisee entity to sign personal guarantees of the franchisee’s obligations. If the owner is a Development LLC, the franchisor may want guarantees both from the Development LLC and from its owners. Variations are common. For example, if the developer is an individual who plans to open just three units without bringing in other investors, the simplest approach would be for that person to sign the development agreement individually rather than forming an entity to be the developer. He or she could be the sole member of each Franchisee LLC. The developer would have rights and obligations vis-à-vis the franchisor, but with little legal risk to third parties such as a landlord, suppliers or customers. Unlike a franchised unit, the developer in this case has no operating business. Of course, many multi-unit owners acquire their locations over time without signing a development agreement. The structural suggestions presented here apply equally well to a multi-unit franchisee who lacks a development agreement. Franchisors should also keep the entity issue in mind when signing up new franchisees, regardless of whether they are part of a development group or operated by a single-unit owner. Before each new agreement is signed, the franchisor should verify that the entity has actually been formed and that its name is correct. Entity searches are easily done on state websites. If the search yields no result, the franchisor should ask the prospective franchisee for evidence that the entity was formed. Franchisors should also be sure that no franchisee entity uses the franchisor’s trademark as part of the entity’s name. Use of the trademark could make ownership confusing to third parties, even to the extent that the franchisor might be sued or investigated together with the franchisee for the franchisee’s wrongful acts. A franchisee’s use of the franchisor’s trademark in the franchisee’s company name would also require the franchisor to go to the trouble of ensuring that the franchisee changes its company name upon a termination or nonrenewal. To avoid this, most franchise agreements prohibit the franchisee from using the franchisor’s trademark as part of the franchisee entity’s name. Structuring a multi-unit franchise takes thought and planning. Doing so is worthwhile. A well-structured system allocates risks appropriately and facilitates growth and system change over time. An earlier version of this piece was published in Modern Restaurant Management. Read it here. Tom Pitegoff, Tom.Pitegoff@offitkurman.com
November 6, 2023
Labor and Employment
SBA To Require PPP Borrowers of $2 Million or More to Provide Documentation to Support Certification of Necessity Due to Economic Uncertainty
This blog post may contain information that was accurate at the time of publication but could become outdated over time. We strive to provide relevant and timely content, but circumstances, facts, and data can change. Users are encouraged to verify the current status of any information presented and seek updated guidance where necessary. Originally posted on 11/6/2020, no content changes. The U.S. Small Business Administration (“SBA”) recently posted a notice seeking comment on draft Loan Necessity Questionnaire Form 3509 (For-Profit Borrowers) and Form 3510 (Non-Profit Borrowers) to be used by the SBA to review Paycheck Protection Program (“PPP”) forgiveness applications. The SBA claims that the purpose of the necessity questionnaire is to facilitate the collection of supplemental information used by SBA loan reviewers to evaluate the good-faith certification that borrowers made on their PPP Loan Application that economic uncertainty made the loan request necessary. The completed necessity questionnaire will be due to the PPP lender within ten business days of receipt from a borrower’s lender. These necessity questionnaires present serious concerns for the 29,000 non-profit and for-profit businesses that received PPP loans in excess of $2 Million. The necessity questionnaires contain many questions requiring disclosure of confidential financial and proprietary information. It is not clear whether responses to the questionnaire will be required disclosures with a loan forgiveness application or whether the responses will be required in advance of, or without, submission of a loan forgiveness application. The necessity questionnaire has two parts, a “Business Activity Assessment” and a “Liquidity Assessment.” Business Activity Assessment A comparison of the gross revenue for the first quarters of 2019 and 2020, including supporting documentation. Borrowers must provide information about how COVID-19 has temporarily shut down, caused a reduction in operations, or resulted in additional capital outlays of a borrower. Liquidity Assessment Borrowers are required to provide documentation regarding the amount of liquidity on hand when the PPP loan application was submitted. Borrowers are required to provide documentation regarding distributions and dividends paid to owners during the covered period. Borrowers are required to provide documentation regarding all debt prepayments and capital expenditures made during the covered period. Borrowers are required to provide documentation regarding the amounts paid to owners in excess of $250,000 annualized during the covered period. If privately held, the borrower is required to provide its book value on the last day of the quarter preceding its loan application. Borrowers are required to disclose whether they received any other CARES Act benefits, excluding tax benefits. The necessity questionnaire includes certifications regarding the accuracy of responses, and alarmingly warns that false statements will result in criminal penalties. If you are a borrower with a PPP loan in excess of $2 Million, you need to consult your legal counsel immediately. The information sought will be used by the SBA to determine whether PPP borrowers were initially eligible for the PPP loans they received due to the category of business, access to capital, or ownership by a foreign entity, among other reasons. For borrowers eligible for a PPP loan, aside from the necessity issue, using hindsight to review the actual impact on the PPP borrower after receipt of PPP funds due to business closures, losses in revenue, and effects on employees is patently unfair. Further, no formal SBA guidance was available on the PPP application date. The SBA urged all businesses to apply quickly to avoid losing out on the opportunity to receive PPP funds. Given the uncertainty with how the SBA will use this information, the confidential and proprietary nature of the information sought (which may be publicly available), PPP borrowers should consult with counsel immediately and before submission of a loan forgiveness application. Borrowers may be best served by waiting as long as possible before seeking loan forgiveness (if ever) to allow for SBA and lender guidance to be issued, legal challenges and resolution, and obtain information from lenders as to how the information will be used.
November 6, 2023
Labor and Employment
Noncompete Update: Bans, New Limitations and Restrictions
Employers should remain vigilant, adapt their practices, and explore alternative measures to protect their interests in the face of shifting legal frameworks and heightened scrutiny of non-compete agreements. The Legal Intelligencer By Sarah R. Goodman In today’s rapidly changing business environment, the utilization and enforcement of noncompete agreements and restrictive covenants have become central to maintaining a competitive edge. As businesses adapt to new economic, technological, and workforce dynamics, the legal frameworks surrounding these agreements are also evolving. Notably, two federal agencies are actively working to diminish the prevalence of noncompete agreements. An increasing number of states are joining the ranks of jurisdictions that either prohibit or place significant restrictions on noncompetes, including many nonsolicitation agreements, by enacting comprehensive bans or introducing new limitations. Meanwhile, certain states, while not entirely banning noncompetes, have introduced fresh restrictions. In addition, courts are recognizing novel legal theories for challenging these agreements. Nevertheless, there are still scenarios in which employers can utilize noncompete agreements to safeguard their proprietary information and defend against unfair competition. However, there are formidable new obstacles to overcome, and the regulatory landscape may change in the near future. Recent Key Regulatory Changes On Jan. 5, 2023, the Federal Trade Commission (FTC) introduced a proposed rule aimed at banning most noncompete agreements in the United States on the basis that they constitute unfair methods of competition. The FTC’s proposal attracted significant attention and the public comment period closed on March 20. The FTC has yet to issue a final rule or provide a timeline for doing so; observers closely following the proposed ban do not anticipate a final FTC rule until April 2024 at the earliest. When (and if) the FTC issues the final rule, it will be subject to numerous court challenges by a variety of private entities, including the U.S. Chamber of Commerce. It is unclear whether the final rule will survive attack. Basis for attack include the FTC Act’s own limitations on the FTC’s authority vis-à-vis the history of Section 6(g) and unfair competition; the U.S. Supreme Court’s aversion to upholding federal agency rules when scrutinized under the “major questions” doctrine; the rule itself being an improper delegation of legislative authority under the nondelegation doctrine; and the everchanging political landscape. Despite these challenges, federal agencies are increasingly utilizing new methods to challenge noncompete agreements. This includes an increasing number of antitrust claims targeting traditional noncompetes (and not just no-poach agreements), along with intra-agency cooperation between the FTC, the U.S. Department of Labor, and the National Labor Relations Board (NLRB) to help regulate noncompetes. The NLRB’s general counsel, Jennifer Abruzzo, has taken her own stand on noncompete agreements. On May 30, Abruzzo issued a memorandum expressing her view that most post-employment, noncompete and nonsolicitation agreements violate the National Labor Relations Act (NLRA). In the memorandum, addressed to all regional directors, officers-in-charge and resident officers, Abruzzo asserted that these agreements impede the exercise of Section 7 rights under the NLRA for nonsupervisory employees. She opined that, with few exceptions, the offering, maintenance, and enforcement of such agreements likely violate Section 8(a)(1) of the NLRA. While the NLRB itself had not yet ruled on Abruzzo’s position, it could issue a ruling soon that broadly prohibits non-competition (and nonsolicitation) agreements. Jurisdiction-Specific Challenges to Noncompetes The landscape has also been altered by new state laws. Five states, namely California, Colorado, Minnesota, North Dakota and Oklahoma, have instituted comprehensive bans on virtually all noncompetes with very limited exceptions, such as for certain business sales. California has strengthened its existing noncompete ban, granting employees the ability to obtain attorney fees for successful challenges. Several other states are considering similar laws. On June 20, the New York State Legislature passed a bill banning post-employment noncompetition agreements. While Gov. Kathy Hochul has yet to sign the bill, she has until the end of the year to do so. States that do permit noncompetes are enacting broader restrictions. Over 20 states prohibit various categories of noncompetes, including laws that ban all no-poach agreements and all traditional noncompetes for employees earning less than a specific salary threshold. A growing trend is legislation requiring that employers give individuals advance notice (or a “consideration period”) before the employee can sign a restrictive covenant agreement. Employers in all states, even those without specific laws, must satisfy a common law test for enforcing a noncompete, demonstrating that it is necessary and narrowly tailored to protect a legitimate business interest, typically in terms of geographic scope and duration. Employer Response: Stay Alert and Be Proactive Employers currently using noncompete agreements should assess their current approach and formulate contingency plans for a future where noncompetes might become illegal. While it may take time for a broad noncompete ban to take effect, existing agreements may not be “grandfathered” in or exempted, necessitating alternative safeguards for proprietary information and competitive defense. It is also time to consider other options for protecting business interests. This includes bolstering confidentiality agreements to address gaps left by noncompete bans. Well-drafted confidentiality agreements, coupled with remedies for violations, can offer effective protection for proprietary information. Existing laws like the federal Defend Trade Secrets Act and state laws can serve as alternatives to noncompetes in safeguarding trade secrets. Employers should ensure they treat key proprietary information as trade secrets and consider including arbitration clauses and other provisions for securing relief in their agreements. Modifying employee compensation structures may also discourage unfair competition. For example, introducing longevity bonuses and seniority-based pay raises may deter departures of senior employees who pose a competitive threat. Improving training can also help fill gaps left by noncompete bans. When pursuing mergers, acquisitions, or other deals, account for the evolving legal landscape. Ensure that agreements provide adequate protection in the event of noncompete bans or increased restrictions. Employers should also begin utilizing noncompetes strategically, rather than applying a one-size-fits-all approach to all employees. Overly broad usage may invite scrutiny and threaten the enforceability of truly important agreements for key employees. In other words: treat noncompetes as a precise tool, not a weapon of mass destruction. Employers should remain vigilant, adapt their practices, and explore alternative measures to protect their interests in the face of shifting legal frameworks and heightened scrutiny of noncompete agreements. Reprinted with permission from the October 23, 2023, edition of The Legal Intelligencer © 2023 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.
November 3, 2023
The Practice of Law
Jury Duty | Voir Dire: “To tell the truth?” - Part Two
Originally posted on 02/13/20, content updated on 11/02/23 Courtroom assigned! One after another, Sheriff’s Deputies come to call out a list of potential jurors to report to various courtrooms. I sit, comparing myself to the Schoolhouse Rock “Bill,” sitting on Capitol Hill, just waiting for the possibility of getting called, only to be “stuck in committee” for who knows how long. For now, it appears I am headed — along with 29 of my community “peers” — to a courtroom to face “voir dire,” which derives, as the Chief Judge so ably explained during the informative orientation video, from an old French term meaning “to tell the truth” – my French is rusty enough that I decide not to challenge the judge on this one! “Wait right here, and I’ll be back to take you to the courtroom,” the Deputy tells us after assuring we are all present and accounted for. One step closer, and my thoughts return to how unlikely it is that, as a trial lawyer myself, I will survive voir dire to make it to one of the comfy seats in the jury box. Telling the truth won’t be an issue, obviously. The threshold question is whether the lawyers on the case like my answers. In the video, Judge White cautioned that one or more of us might be subject to an attorney’s “strike” and not to take it personally or to take offense if that happens. Yeah, right! How else to interpret being stricken other than: “Juror X, you are exactly the kind of person we don’t want deciding the fate of our client. Buh-bye!” Still, we all have our biases, whether we recognize them or not. As trial attorneys, we are called upon to engineer trial scenarios most favorable for our client, including evaluating and striving for the most potentially favorably pre-disposed jury possible – or, in any event, one that is the least unfavorably pre-disposed! But, this day, I am not the one doing the engineering. This day, my own predispositions are subject to being exposed – or worse . . . presumed! . . . guessed at by those who will be forced to consider, as they must with each potential juror, whether having me, a trial attorney, on their jury panel is a pro or a con for their client’s case. When the attorneys “rest” their case and the jury leaves to deliberate the outcome, will my presence in the room help or hurt their chances of success? Essentially, the attorneys on the case must decide whether my professional experience is more or less likely to be a positive factor for them. Will I be open-minded and able to decide the case based only on the evidence presented? Will I influence others on the jury to consider things that perhaps only I observed during the trial because of my own trial experience (evidentiary shortcomings?) or be called upon to explain what something meant (a legal objection sustained or an instruction from the judge), or perhaps even resolve legal questions ordinarily brought to the judge’s attention? And, ultimately, will it be better or worse for their client if I am in the jury room with the possibility of any or all of the above. Whoa! Pump the brakes, big guy! Reality check. We’re still sitting in the jury assembly room, awaiting the Deputy’s return to take us to the courtroom. I wonder what kind of case we’ll be assigned . . . civil or criminal? Will it be an attorney I know? Here comes the Deputy now . . . . Juror 996642 ready for voir dire!
November 2, 2023
Business
The Current M&A Market: Three Questions & Three Pieces of Advice
In an Uncertain M&A Market, Is Now the Time to Sell Your Business? 3 Questions and 3 Pieces of Advice In the lower middle market, the mergers and acquisitions market is still hot (despite the larger economic challenges). This is largely due to a combination of issues, including “Covid hang-over” concerns, challenges with hiring and retaining employees, baby-boomers getting older and the large amounts of cash that still needs to be deployed. As a result, 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 hot forever. And with a potential further 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: get ready to sell your business as soon as possible, or prepare to keep running it until the next M&A window develops. 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. © 2017 - 2023 Michael N. Mercurio. All Rights Reserved. Originally posted 9/23/2020, content updated 11/2/2023.
November 2, 2023
Tax
New Jersey Law Permits Pass Through Entities to Bypass the Federal Cap on State and Local Tax Deductions
Originally posted on 2/20/2020, no content changes New Jersey has passed legislation to limit the impact of the $10,000 cap on state and local tax (“S.A.L.T.”) deductions created by the 2017 federal implement Tax Cuts and Jobs Act. The bill creating the New Jersey law, known as The Pass-Through Business Alternative Income Tax Act (A-4807/S-3246) was signed by the governor of New Jersey on Jan. 13, 2020 and was previously passed by the New Jersey legislature on December 16, 2019 (“NJ Act”).[1] The NJ Act creates an optional entity-level tax on pass-through businesses. The NJ Act permits New Jersey pass-through entities, such as “S” corporations, partnerships and LLCs to elect to pay income taxes at the entity level as a business expense instead of at the personal income tax level. Paying the tax individually subjects the tax payer to the limitation for federal deductibility of state and local taxes of $10,000. By structuring as a deductible business expense/tax at the entity level, the pass-through entity’s taxable income is reduced by the amount of the tax and the flow through income to the owner is so reduced. Under the NJ Act the “pass-through entity” must have at least one member who is liable for tax on distributive proceeds pursuant to the “New Jersey Gross Income Tax Act” in a taxable year. The NJ Act defines “distributive proceeds” as the income, dividends, and gain of a pass-through entity, derived from or connected with sources within the State of New Jersey, and upon which tax is imposed and due on a member of the pass-through entity pursuant to the “New Jersey Gross Income Tax Act” in a taxable year. The New Jersey Society of Certified Public Accountants (“NJCPA”) welcomed the signing of the NJ Act: “We are grateful to the Governor, the Legislature and all those who supported the bill. Their dedication to assisting small businesses in New Jersey does not go unrecognized.” The NJCPA noted that the NJ Act is estimated it would save New Jersey business owners $200 to $400 million annually on their federal tax bills. The NJ Act was sponsored by Assemblymen Daniel Benson and Roy Freiman in response to federal changes to S.A.L.T that “have had a great impact on homeowners and businesses”, according to Benson. Benson further opined that “[t]his tax payment option could save business owners $450 million annually without costing the state any money in lost revenues. Protecting New Jersey businesses against sweeping federal changes ensures New Jersey’s economy stays on the right track and business owners continue to thrive.” Other states, such as New York, have also attempted to implement a state law to circumvent the federal S.A.L.T. limits through contributions to state-run charitable funds. However, the Internal Revenue Service (“IRS”) issued regulations that eliminate the benefits of the New York law. The New Jersey approach has not been expressly barred by the IRS as of the writing of this article. As such, the NJ Act is effective for pass through entities for tax years beginning after January 1, 2020. The option to pay the tax at the entity level is made for each tax year by an authorized person(s) for the entity. Moreover, the tax rates imposed at the entity level are different from those imposed on individuals. The practical import of the NJ Act is that tax advisors for businesses should advise their New Jersey flow through entity clients of the change in New Jersey law, risk/benefit tradeoff of making such an election, as well as careful consideration of taking advantage of this change in the law by paying estimated taxes at the entity level (i.e. reducing their draws/distributions) instead of at their individual level. Additional considerations should include that the option to pay the tax at the entity level is made annually by the entity and the tax rates imposed at the entity level differ from the rates imposed on individuals. Owners of pass through entities must consult their lawyers and tax advisors prior to making any decisions. [1] The NJ Act supplements Title 54A of the New Jersey Statutes and amends N.J.S.54A:4-1 and P.L.1993, c.173. The text of the NJ Act can be found at https://legiscan.com/NJ/text/S3246/id/1829428
November 1, 2023
The Practice of Law
Jury Duty – A Litigator’s Dream? Part One
Originally posted on 01/30/20, content updated on 10/31/23 Juror 996642 reporting for duty! There I was, responding to my first ever “SUMMONS FOR JURY DUTY.” I’d heard several stories over the years from legal colleagues and friends summoned, voir dire’d, and a couple who actually served on a jury. Not me. Decades of eligibility, but this was my virgin run! Perhaps I filled out the form differently this time? Had I been previously claiming an exemption? Honestly, I’ve no recollection of past years but have a vague recollection of making a conscious decision not to claim an exemption in hopes of serving. Voila! As members of the Bar, especially those of us who spend a substantial time at the courthouse, we appreciate all too well the substantial amount of effort and resources that are required to provide access to justice. Here in Virginia, and Fairfax County, in particular, we are fortunate to have the resources we do (though we could always do more with more!) and an unyielding commitment to timely resolution of cases. To be sure, there will always be opportunities for improvement in the judicial system, many of which we as members of the legal community are uniquely empowered to pursue. Being willing to answer the call to serve and to accept the responsibility of possibly being asked to help decide the guilt/innocence or civil liability of a “peer” is an opportunity too easy not to partake. Each state handles jury duty obligations differently. In fact, with both a federal and state court claiming jurisdiction over you no matter where you live, eligible jurors are at all times subject to multiple selection systems. In Virginia, the selection process differs from county to county. Fairfax County is the largest jurisdiction in the Commonwealth, with the most potential jurors. As a result, one answering the call to serve can anticipate it’s being at least several years before being summoned to serve again. Here in the “land of the free, because of the brave,” where one’s “day in court” comes as a right and privilege for which so many have sacrificed so much, jury duty is really no sacrifice at all. So . . . client obligations, pending deadlines, other work, and family commitments aside . . . along with maybe 100-150 or so fellow Fairfax County residents answering the call, I am Juror 996642 . . . reporting for duty! After the parade is over and all the fanfare and hoopla die down (not!) . . . my I.D. has been verified, and I have made myself comfortable in the assembly room. Polite smiles; quiet as expectations build; we wait. Next time . . . “voir dire.”
October 31, 2023
Estates and Trusts
A Gift from the IRS? A Holiday Miracle
The holidays are nearly upon us, and for many, this means holiday cheer, baking, and our endless gift lists. What should also come to mind is the “gift” that the IRS bestows upon all of us, which is the ability to make many gifts to our loved ones free of taxes, together with the benefits that accompany making those gifts. Below is a handy list of gifts that should be considered as we close out 2023. Annual exclusion gifts: In 2023, an individual can make annual gifts of up to $17,000 per recipient to an unlimited number of individuals free from any gift tax. Married couples can double this gift to $34,000 per recipient to an unlimited number of individuals. This benefit is called the “annual exclusion amount” because the gift is excluded from gift tax for the calendar year in which the gift is made. The annual exclusion is a “use it or lose it” benefit, meaning that your ability to gift for that year ends after the year has passed. Not only are annual exclusion gifts an effective way to pass wealth to family members and others, free from estate or gift taxes, but these gifts also have the added benefit of reducing the gift-giver’s taxable estate that would otherwise be subject to an estate tax upon his death. These annual exclusion gifts can be made “outright” and paid directly to the recipient to qualify for the annual exclusion. Certain gifts can even be made to the recipient in a trust if it is properly structured. Lifetime gifts: Gifts exceeding the annual exclusion amount are sometimes referred to as “lifetime gifts.” When “lifetime gifts” exceed the $17,000 or $34,000 annual exclusion amount in the case of a married couple, it reduces the federal estate tax exemption of the gift-giver. For example, the current federal estate tax exclusion is $12.9M for each person. This means that at the federal level, the gift-giver can either gift during their life or die with $12.9M. Therefore, if the gift-giver gifts $117,000 to a recipient in 2023, $17,000 of the gift will qualify for the annual exclusion amount for 2023. The remaining $100,000 gift will reduce the gift-giver’s lifetime estate tax exclusion by $100,000, thus reducing his available estate tax exclusion credit from $12.92M to $12.82M at death. The other benefit of making more significant lifetime gifts that exceed the annual exclusion amount is that it removes the value of the gifted assets from the gift-giver’s estate. Removing assets from the gift giver’s estate can be particularly useful when the gifted asset is expected to appreciate in the future. By gifting those highly appreciable assets out of the gift-giver’s estate now, the gift-giver’s estate will pay a reduced estate tax at their death. Lifetime gifts should be strongly considered at the present time as the federal estate tax exclusion of $12.92M is set to “sunset” at the end of 2025. This means the amount of assets you can die with that will not be subject to an estate tax will plummet from $12.92M free of estate tax to only approximately $6.8M free of estate tax. Therefore, making gifts now to take advantage of the current $12.92M estate tax exemption is something to consider. Charitable Giving: Most appreciate the many benefits of gift-giving to a favorite charity: it feels good to make a positive impact while simultaneously supporting a cause that is meaningful to the gift-giver. Many are unaware, however, that there are trusts that can be established to provide the gift-giver with an income stream, a tax break during the gift-giver’s life, and a gift to one’s favorite charity at death. A charitable remainder trust does just that: it allows the gift-giver to make a contribution to the trust for the charity while simultaneously providing a partial tax deduction for the gift and an income stream to the gift-giver or her loved ones. The tax deduction the gift-giver receives from funding a charitable remainder trust is based on the type of charitable remainder trust created. The deductions, depending on the type of charitable remainder trust, are then calculated by several factors, including the present value of the charity’s interest, the assets “donated” to the trust, how long the trust will likely remain and/or the annual “payout” rate to the income beneficiary. In addition to the present tax benefit enjoyed by the gift-giver, the gift-giver can also name herself or a loved one as the beneficiary of the present income stream from the assets donated to the trust. Based on how the trust is set up, the gift-giver (or nominated income beneficiary) can receive income annually, semi-annually, quarterly, or monthly. The IRS requires that the annual income stream must be at least 5% but no more than 50% of the trust’s assets. After the specified term of the trust or upon the death of the last income beneficiary, the remaining trust assets are then distributed to the designated charitable beneficiaries. The charitable beneficiary (or beneficiaries) can be public charities or private foundations. Moreover, the trustee can be provided the power to change the trust’s charitable beneficiary (or beneficiaries) during the lifetime of the trust, if necessary. Gifting can be an integral part of one’s estate plan. Gift planning, especially involving trusts, can be complex and highly individualized. It is crucial to consult a knowledgeable estate planning attorney to ensure that the gifts made are properly structured and comply with tax laws at the state and federal levels, especially as the tax laws change over time. Please get in touch with me directly to discuss these or other gift-giving options before the end of 2023.
October 30, 2023
Bankruptcy
Demystifying the Bankruptcy Process - Part Six
Originally posted on 12/27/2020, content updated on 10/27/2023 The COVID-19 pandemic created a lot of turmoil in every industry and every company. Hundreds of companies in the energy, transportation, entertainment, health & personal care, retail, travel, lodging, and leisure industries cited COVID-19 as a factor in their decision to commence a bankruptcy proceeding. According to 2020 data compiled by Bloomberg, the pandemic battered New York City businesses, with almost 6,000 closures by late October 2020, a jump of about 40% in bankruptcy filings across the region, and shuttered storefronts in the business districts of all five boroughs. The final summary in the series is intended to help small business owners better understand how valuable a tool Chapter 11 can be during a time of crisis. The Small Business Reorganization Act (or Subchapter V of Chapter 11 of the Bankruptcy Code), which went into effect in February 2020, offers a timely and cost-efficient solution for businesses with undisputed non-contingent liability of up to $7.5 million. Among the key benefits of the traditional restructuring regime under Chapter 11 of the Bankruptcy Code are: the management stays in control of the company and an outside trustee/administrator is not brought in unless there are extraordinary circumstances. the company can cherry-pick beneficial contracts and reject burdensome ones. the company can sell its business, selected business lines, or individual assets free and clear of any encumbrances or interests. Subchapter V brings even more benefits to the equity owners of the company and, by all indications, seems to be working as intended. The Small Business Reorganization Act (SBRA), incorporated in the Bankruptcy Code under Subchapter V of Chapter 11, went into effect on February 19, 2020. It provides a faster, cheaper, and simpler mechanism for reorganization of small businesses. Who is eligible to file under subchapter V - Businesses and individuals engaged in commercial activities with no more than $2,725,625 of liquidated and non-contingent obligations? However, businesses for which primary activity is the owning of single-asset real estate are not eligible. The CARES Act had increased the debt ceiling to $7,500,000 through March 27, 2021. The increased debt limit applied only to cases filed after the effective date of the CARES Act. There are a number of modifications of the traditional restructuring process that make a subchapter V proceeding a more straightforward and cheaper path to reorganization: It allows the owner of the business to preserve his or her equity even when the business is not in a position to pay in full its secured and unsecured creditors (i.e., abrogates the so-called “absolute priority rule”). The creditors' ability to block confirmation is significantly weakened because Subchapter V eliminates the traditional requirement that at least one impaired class of creditors accepts the reorganization plan. A reorganization plan will be deemed fair and equitable to objecting unsecured creditors if the debtor pays projected disposable income to be received over at least three years. A subchapter V plan may provide for later payment of administrative expenses (i.e., payment through the plan) as opposed to payment on the effective date of the plan. Only the debtor company can file a plan (i.e., eliminates the ability of creditors to propose their own restructuring plan). It eliminates U.S. Trustee quarterly fees and other procedural and reporting burdens. The SBRA cases work on a tight schedule. Within 60 days of the filing, the bankruptcy court has to hold a status conference “to further the expeditious and economical resolution” of the case. Fourteen days prior to the conference, the debtor must file a report detailing the efforts to attain a consensual plan of reorganization. The Debtor must file a plan 90 days after the order for relief. The SBRA debtor need not solicit plan acceptances with a separate disclosure statement. The plan must include a brief history of the business operations of the debtor, a liquidation analysis, and projections with respect to the debtors’ proposed payments under the proposed plan. Confirmation of a small business debtor plan of reorganization is pursuant to the usual criteria of section 1129(a) of the Bankruptcy Code, with the critical exception that the debtor does not need to obtain the acceptance of even one impaired class of creditors. Allowing only the debtor to file a reorganization plan and to preserve equity in the process while giving them the option to force a plan against the creditors’ vote provides a unique opportunity for reviving a business in these challenging times. If you have a question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
October 27, 2023
Family Law
The Role of Forensics in Child Custody Cases in 2023: Ensuring the Best Interests of the Child
Child custody cases are among the most emotionally charged and complex legal matters. In recent years, the integration of forensic evidence has become increasingly important in determining the best interests of the child involved. This article explores the significance of forensics in child custody cases and how it aids in ensuring the well-being and safety of the child. The Evolving Role of Forensic Evidence: Forensic evidence in child custody cases encompasses a wide range of disciplines, including psychology, social work, and mental health evaluations. These evaluations help assess the child's emotional, mental, and physical well-being, as well as the capabilities and suitability of each parent to provide a nurturing environment. Objectivity and Expertise: Forensic professionals are trained to approach child custody evaluations objectively, utilizing scientifically validated methodologies and standardized assessment tools. Their expertise helps the court make informed decisions, considering factors such as parental abilities, parenting styles, home environments, and relationships with extended family members. Assessing Allegations of Abuse or Neglect: In cases where allegations of abuse or neglect arise, forensic evaluations play a crucial role. Professionals may perform interviews, review medical records, and conduct investigations to determine the veracity of such claims. This evidence-based approach ensures that the child's physical and emotional safety remains Coordinating with Other Professionals: Forensic experts often collaborate with other professionals involved in the case, such as therapists, child protective service workers, and attorneys. This collaboration enables a comprehensive understanding of the child's unique circumstances and facilitates the development of appropriate recommendations for custody arrangements. Issues of Parental Alienation: Forensic evaluations also address concerns related to parental alienation, where one parent attempts to manipulate or undermine the child's relationship with the other parent. These evaluations delve into the dynamics between parents and children to identify signs of alienation and make recommendations for intervention if necessary. Ensuring Ethical Standards: Forensic professionals adhere to ethical guidelines, ensuring impartiality, confidentiality, and respect for the child's rights. They are committed to understanding cultural, ethnic, and religious diversity, which may influence the child's upbringing and well-being. Conclusion In 2023, the integration of forensic evidence in child custody cases continues to play a crucial role in safeguarding the best interests of the child involved. The use of objective, evidence-based assessments allows courts to make informed decisions that prioritize the child's well-being, safety, and long-term development. By relying on forensic evaluations, the legal system strives to ensure fairness, accuracy, and justice for all parties involved in child custody disputes.
October 26, 2023
One Minute of Overtime
Engaging Employees
Welcome to One Minute of Overtime, where I will share insights on Labor and Employment Law topics, mostly related to minimum wage and overtime compliance issues. Compliance in this area of law is nuanced and technical, so it is critical for employers to audit and adjust their practices to remain compliant, so stop by to stay up-to-date and in-the-know. There is a difference between employees “engaged to wait” and “waiting to be engaged.” Employees engaged to wait, such as a firefighter playing checkers while waiting for a call, should be paid for their time. Employees waiting to be engaged, such as a helpdesk worker who is on call, need not be paid until the employee actually gets a call.
October 26, 2023
Family Law
The Child-Parent Security Act and Compensated Surrogacy
Originally posted on 10/23/2020, content updated on 10/25/2023 On February 21, 2021 New York’s long-time ban on compensated gestational surrogacy ended as the New York Child-Parent Security Act (“CPSA” or the “Act”) became effective, providing those New Yorkers who relied upon assisted reproductive technology (“ART”) in order to have children, a far easier path to establishing their legal parental rights.i The Act is detailed and comprehensive, providing clear procedural requirements (which must be followed) to ensure the legality of the gestational surrogacy, and therein secure, in the simplest manner possible, the legal relationship between infant and intended parent. In gestational surrogacy, the gestational carrier cannot be biologically related to the child she is carrying, and, in New York surrogacy arrangements where the surrogate provides/provided the egg, continue to be prohibited. Prior to the passage of the CPSA, future parents needing the assistance of a compensated surrogate to have a child had no choice but to engage a surrogate who resided and gave birth to the child outside of New York. Costly adoption proceedings were thereafter necessary to secure the legal relationship between the new parents and their child. The CPSA replaces all that with a simple procedure to obtain a pre-birth judgment of parentage, thereby establishing and fixing the legal relationship between parent and child from birth. The Act is gender and marriage neutral (closing old gaps in the law), and determines parentage by reference to the intention to parent rather than a genetic connection that may or may not exist. The Act also addresses disputes arising as a result of cryopreserved embryos that remain after the dissolution of a marriage or non-marital relationship and provides a clear means for the couple to address the issue. The Act additionally creates a novel process, wherein a single intended parent conceiving with donor genetic material may obtain a judgment of parentage declaring him or her to be the only legal parent of the child. Last but far from least, the Act protects not only the child and intended parent(s), but importantly creates a “surrogate’s bill of rights,” setting a new standard for the protection of gestational surrogates, giving them: access to their own independent legal counsel; the right to make health and welfare decisions concerning themselves and the pregnancy; the right to health insurance coverage, life insurance, and psychological counseling; and, the right to decide not to proceed with the pregnancy without any penalties. New Yorkers considering the use of a gestational surrogate should be aware of the expansive changes in law provided by the CPSA, and retain Counsel well versed in the new law, its requirements and complications in order to ensure as trouble-free a process as possible. i Until the passage of the CPSA (signed into law on April 2, 2020), gestational surrogacy was illegal in the state, and punishable by criminal penalties.
October 25, 2023
Business
The Entrepreneur’s Lab Video Series: Due Diligence
Due Diligence, exchanging information and documents during a sales transaction can be a tricky proposition. During our business life, we do all we can do to keep our information and data private. With the transaction, a seller will be asked to tell and show all. Due Diligence is typically conducted in three buckets: financial, legal and operational. As a seller moves beyond the letter of intent, the diligence process intensifies. There will be a natural tension between buyer and seller as to what to disclose and when. Sellers naturally want to keep their data, customers, employees, and other items close to the vest. Buyers want to know about contracts, customers, and employees ASAP. So, what should a seller do? Here are a few tips. Make certain to have a strong confidentiality agreement that contains non-solicitation provisions from the buyer. Understand that disclosure is the friend of the seller. Few businesses have zero nicks. Disclose the good, the bad, and the ugly to any buyers. Note that diligence is a process that continues to closing; manage the process with the buyer so that risk is mitigated. For example, hold back introductions of clients and employees to the buyer until such time that the deal is on firm ground. Last, and most importantly, get organized. Nothing is worse than a shoebox full of papers. Being disorganized during diligence will cost the seller valuable time and money. Originally posted 1/26/2018, no content changes.
October 24, 2023
Family Law
New York Law Extends Support for Handicapped Children Beyond Age 21
In a groundbreaking move, the State of New York became the 41st state to enact a progressive law requiring parents to continue supporting their handicapped children beyond the age of 21. This decision showcases New York’s commitment to ensuring the well-being and inclusion of individuals with disabilities, guaranteeing them a stable future filled with opportunities for growth and independence. Background and Rationale The law amends the Domestic Relations Law and the Family Court Act to allow custodial parents or caregivers of children with “developmental disabilities” to petition a Court to receive support payments until the child is age 26. SeeDomestic Relations Law §240-d; Family Court Act § 413-b. The new law builds upon the existing legal framework surrounding disability rights and represents a significant step forward in promoting inclusivity and equity for all members of society. By extending parental support beyond the traditional age of adulthood, New York aims to bridge the gap between education and independent living for handicapped individuals. Recognizing that disabilities may impede self-sufficiency, this legislation seeks to offer a safety net that promotes their long-term welfare. Key Provisions Who May Seek the Relief: A medical professional must have previously diagnosed the child with a “developmental disability.” The custodial parent or caregiver of the “developmentally disabled” child may petition the Court for relief provided that the child is “principally dependent” on the petitioner and resides with the petitioner. What is the Definition of Developmentally Disabled: A developmental disability is as defined by the Mental Health Law, which includes, but is not limited to, cognitive, developmental, and physical disabilities. The disability must (1) have originated before the child became 22 years old, (2) have continued or can be expected to continue indefinitely, and (3) constitute a substantial handicap to the child’s ability to function normally in society. See Mental Health Law §1.03 (22). Extended Financial Support: Under this law, parents are required to continue providing financial support to their handicapped children beyond the age of 21. This provision ensures that individuals with disabilities have access to basic necessities, healthcare, and other essential support services. Education and Vocational Training: The legislation emphasizes the importance of ongoing education and vocational training for handicapped individuals. Parents are encouraged to facilitate their children’s continuing education or skill development to enhance their employment opportunities and improve their overall quality of life. Guardianship and Decision-making: The law provides provisions for parents to retain guardianship over their handicapped children even after they reach adulthood. This empowers parents to make decisions concerning medical care, housing, and other crucial aspects of their child’s life, ensuring their ongoing well-being and security. Housing and Accommodation: The law recognizes the critical role of suitable housing in fostering independence and mandates parental responsibility in securing appropriate living arrangements for their handicapped children. This provision aims to prevent homelessness and promote inclusive communities that cater to the unique needs of individuals with disabilities. Impact and Implications This progressive legislation has far-reaching implications for disabled individuals and their families. It promotes their physical and emotional well-being and strengthens the foundation for a more inclusive society where every person is valued and included. By removing barriers to independence, New York aims to empower handicapped individuals to lead fulfilling lives, contribute to their communities, and achieve their full potential. Conclusion The passage of the New York law requiring parents to support handicapped children beyond the age of 21 is a significant milestone in disability rights and sets an inspiring example for other states to follow. By recognizing the ongoing needs and challenges faced by handicapped individuals, the law acknowledges the importance of parental support in fostering their independence and overall well-being. It is a step towards creating a more inclusive and compassionate society that values and empowers every member, regardless of their abilities.
October 23, 2023
Family Law
New Standard for Child Relocation Applications in New Jersey
Originally posted on 4/20/2018, content updated on 10/20/2023 So you want to move to warm, sunny Florida with the kids, but your ex spouse is saying “no way”…… The Best Interests of the child In Bisbing v. Bisbing, the New Jersey Supreme Court held that the outcome of a contested relocation determination must be made pursuant to the best interests of the child. This replaced the previous case law, which was heavily relied upon in Bauers v. Lewis. In all contested relocation disputes, courts should conduct a best interests analysis to determine “cause.” The best interests of the child standard is the new standard, regardless of the custody arrangement in place. In Bisbing v. Bisbing, pursuant to the terms of a Marital Settlement Agreement, the divorcing parents agreed that the Mother was the primary residential parent with custody of their twin daughters. The MSA also included a relocation provision stating that “[n]either party shall permanently relocate with the children from the State of New Jersey without the prior written consent of the other.” Shortly after the divorce, the mother informed the father that she was planning to remarry and relocate to Utah with her new husband (with whom she had a relationship prior to the Court granting the Final Judgment of Divorce). The father refused to consent to the permanent relocation of the children to Utah. The mother then filed a motion seeking an order permitting her to permanently relocate with the children to the State of Utah. The Father stated that the Mother had negotiated the MSA in bad faith, securing his consent to her designation as the Parent of Primary Residence without informing him that she relocated. Applying the standard established in Baures v. Lewis, the Trial Court granted the Mother’s application for relocation, finding she presented a good-faith reason and that the move would be in the children’s best interest. Thereafter, the Mother relocated to Utah with the children. The Father appealed the Trial Court’s decision. The New Jersey Appellate Division reversed and remanded, finding that there was a genuine issue of material fact as to whether the Mother negotiated the custody provisions of the MSA in good faith. The Mother was then Ordered to return with the children to the State of New Jersey. The Trial Court ordered the parties to then abide by the residency provisions previously entered into in the MSA. Supreme Court finds “Special Justification” to Abandon the Baures Standard. The Supreme Court of New Jersey recognized a “special justification” to abandon the standard it had established in Bauers v. Lewis for determining the outcome of contested relocation matters. In place of the Baures standard, Courts should conduct a best interests analysis to determine “cause” under N.J.S.A. 9:2-2 in all contested relocation disputes in which the parents share legal custody. The Court remanded to the Trial Court for a Plenary Hearing to determine whether the Custody arrangement previously agreed to and as set forth in the parties’ MSA should be modified to permit the relocation of their children to Utah. No Waiver of Interstate Child Relocation The Court declined to agree with the Father’s assertion that by consenting to the Interstate relocation provision of the MSA, the Mother waived her right to a judicial determination of her relocation application under N.J.S.A. 9: 2-2. However, the Mother must demonstrate that there is “cause” for an Order authorizing relocation, which shall be determined by the best interest analysis considering the factors in N.J.S.A. 9:2-4 ( c). Notably, because the best interests standard applies to the determination of “cause” nothwithstanding the designation as the Parent of Primary Residence, the Trial Court need not decide whether the Mother negotiated the parties’ MSA in bad faith. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
October 20, 2023
Franchise Law
When are Parent Company Financial Disclosures Required?
Originally posted 5/22/2017, no content changes. A franchisor selling franchises in the U.S. must disclose its audited financial statements in Item 21 of the franchise disclosure document (FDD). Sometimes, parent company financials are used instead of the franchisor’s financials. This is easily done when the parent company is a public company that already has audited financials. But most franchisors are not public companies. They are not likely to have parent company audited financials and would prefer not to incur the added expense of auditing a group of companies rather than just the franchisor entity. Audits are expensive. The franchisor may also want to shield its parent company from liability to franchisees. The FTC Rule requires parent company financial disclosures in certain cases. Specifically, the FTC Rule requires disclosure of the financial statements of “any parent that commits to perform post-sale obligations for the franchisor or guarantees the franchisor’s obligations.” So if the franchisor wants to avoid disclosing parent company financials and to protect the parent company from the liabilities of the franchise company subsidiary, the simplest approach is to be sure that the parent company does not perform any post-sale obligations of the franchisor to the franchisee. In other words, a franchisor should ensure that either the franchisor itself or an affiliated company, and not the parent company, performs any post-sale obligations of the franchisor. These obligations might be, for example, a requirement to supply specified equipment, goods, inventory or services to franchisees. An affiliate other than a parent company is permitted to provide goods or services to franchisees without triggering an added obligation to disclose financials. FAQ 4 of the FTC’s frequently asked questions states that if the franchisor “is obligated to provide goods and services and the parent assumes that responsibility, or the franchisor arranges for the parent to provide goods and services directly to franchisees on its behalf, then the parent’s financials must be disclosed.” FAQ 30 qualifies this requirement. It states that “if a franchisor’s parent is the sole supplier of a good or service without which a franchise cannot be operated,” the parent company’s financials must be disclosed in Item 21. “To the extent that a prospective franchisee is asked to rely on a parent to perform post-sale contractual obligations or relies on a parent’s guarantee, the financial stability of the parent becomes a material fact that should be disclosed.” Statement of Basis and Purpose, 72 Fed. Reg. 15444, 15511 (Mar. 30, 2007) In other words, parent company financials are not required when the franchisee may optionally purchase the goods or services either from the parent company or other sources. But parent company financials are also not required when an affiliate is the supplier and the affiliate does not guaranty the obligations of the franchisor. For this reason, many franchisors will have a holding company that owns both a supply company and a franchisor entity (as well as an operating company that owns the “company” outlets). These are affiliated companies or sister companies. The requirement of audited financials is one reason that many new franchisors form a new entity to be the franchisor, rather than the company that has been operating the business through company-owned locations. The first FDD can include an audit of the newly-formed franchisor’s opening balance sheet. Or the balance sheet may be unaudited in most states (but not New York) in the first year. If the franchisor prefers not to disclose its own financials, the franchisor has the option of including financial statements of any affiliate if the affiliate “absolutely and unconditionally guarantees to assume the duties and obligations of the franchisor under the franchise agreement.” (See Item 21 of the FTC Rule.) In most cases, though, the franchisor does not want to disclose the financials of its affiliate or of its parent company. Avoiding disclosure of affiliate company financial statements does not mean that no financial disclosures of affiliates are required. Item 8 (restrictions on sources of products and services) requires disclosure of required purchases from the franchisor or its affiliates. This includes disclosure of the total revenue, revenues from all required purchases, and the percentage of total revenues that the franchisee or its affiliates receive from required purchases. This can result in a required disclosure along these lines: “In 2016 [the most recent fiscal year], our affiliate ABC LLC received $_____ based on sales to our franchisees, which represented ___% of the total 2016 revenues of ABC LLC or $_______ based on the company’s internal books and records.” This is a meaningful disclosure. But it is far less of a disclosure than audited financial statements of the affiliate. Aside from the financials, other affiliate disclosures are required in Items 1 (the franchisor and any parents, predecessors and affiliates), 3 (litigation) and 4 (bankruptcy). Items 5 (initial fees), 6 (other fees) and 7 (estimated initial investment) require disclosure of payments that must be made to affiliates. Item 20 (outlets and franchisee information) requires disclosures of the numbers of “company” outlets, which may actually be those of an affiliate. Tom Pitegoff, Tom.Pitegoff@offitkurman.com
October 20, 2023
Family Law
Immunizing Against Anti-Vaxxers
How Courts are Protecting Children from Parents Who Go Against Science and What it Could Mean in the Age of COVID-19 Originally posted 9/10/20, content updated on 10/19/23. Over the past nearly forty years,[1] and with increased fervor over the past twenty years,[2] the United States has seen the birth and exponential growth of the anti-vaccination (“anti-vaxxer”) movement. Spurred by conspiracy theories and junk science, this “movement” has gained traction across the nation and has even garnered protections under the First Amendment. Only five (5) states have laws requiring children in public schools to be vaccinated unless they have a valid medical reason not to be vaccinated.[3] The remaining 44 states allow children to be exempt from vaccinations due to religious concerns. While 15 states also allow exemptions for any type of nonreligious personal belief. The Centers for Disease Control has conclusively stated that “there is no link between vaccines and autism.” Since 2003, there have been nine CDC-funded studies concluding that neither vaccines nor vaccine ingredients cause autism. More recently, a 2011 study by the Institute of Medicine and a 2013 study by the CDC added to the growing body of research debunking this myth. The vaccine debate has also played out in another, less public, arena: family court. When two parents disagree on whether to vaccinate their child, that issue is front and center in any custody case. Until recently, the jurisprudence on this issue did not favor one position over the other. In 2019, the Maryland Court of Special Appeals issued a quiet but ground-breaking ruling in In re: K. Y-B, 242 Md. App. 473. In In re K. Y-B, the mother of an infant objected to the child receiving vaccinations on religious grounds. After the filing of a CINA petition, the Department of Social Services was granted limited guardianship and permission to allow the minor child to receive routine vaccinations. The mother filed an immediate appeal, and the Court of Special Appeals held that a parent is free to believe as they wish but cannot act on their beliefs in such a way as to pose a serious danger to the child’s life or health or impair or endanger the child’s welfare. The Court further held that the significant risks to the child and to the public if he does not receive childhood immunizations outweigh a parent’s right to religious freedom. This ruling creates a precedent in Maryland that failure to vaccinate a child poses a serious danger to the child’s life and health and impairs or endangers the child’s welfare. It reasonably follows that a parent who would make such a decision is not acting in the minor child’s best interest, which is the prevailing standard for determining custody. A look at recent cases across the country on this issue evidences an emerging trend towards a public policy that requires vaccinations. It is also an indication that a parent’s anti-vaccination stance may be a determinative factor in awarding sole legal custody or tie-breaking authority to the other parent. In 2004, the Texas appellate court upheld the trial court’s decision to give the father sole decision-making over vaccines when the mother was anti-vaccination. See Garcia-Udall v. Udall, 141 S.W.3d 323 (Tex.App. 2004). In 2006, Colorado awarded sole legal custody to the parent who wanted to vaccinate the minor child in accordance with the recommendation of medical professionals. “Citing the special advocate’s finding that providing medical care consistently and under the advice of a qualified physician was in the child’s best interests and that the father was more likely to follow such advice, the court allocated decision-making responsibility for the child’s medical care to father.” In re Marriage of McSoud, 131 P.3d 1208, 1214 (Colo.App. 2006). In 2014, North Carolina joined the trend in a case where the parents had joint decision-making authority, and the father wanted the children vaccinated, and the mother did not. Unbeknownst to the mother, the father had the children vaccinated, and the appellate court upheld the lower court’s finding that the father was not in contempt on the grounds that the vaccines were not harmful to the children. See Meduri v Meduri, 763 S.E.2d 338 (N.C.App. 2014). Pennsylvania followed suit in 2015. In B.C.S. v. T.S.S., 121 A.3d 1137 (Penn. 2015), the mother’s anti-vaccination stance was deemed “unorthodox” and a display of “poor judgment” by the trial court, which awarded the father sole decision-making authority. The Pennsylvania Supreme Court affirmed. The District of Columbia took an unorthodox approach in a 2015 case where the parties had joint legal custody, but the father had tie-breaking authority in the event of an impasse. The father exercised his tie-breaking authority and refused to allow the parties’ daughter to receive the HPV vaccine. The trial court removed the father’s tie-breaking authority and appointed a third party to resolve disputes over vaccines, and the appellate court upheld the lower court’s ruling. See Downing v. Perry, 123 A.3d 474 (D.C.App. 2015). In 2017, three (3) states issued opinions awarding sole legal custody to the parent who supported vaccinations for minor children. Missouri upheld the award of sole medical decision-making to the father, against the mother’s anti-vaccination wishes. See Gammon v. Gammon, 529 S.W.3d 350 (Mo.App. 2017). In Indiana, an award of sole decision-making authority over vaccines for minor children was upheld in a case where the mother was anti-vaccination. See Young v. Young, 95 N.E.3d 218 (Ind.App. 2017). The Tennessee appellate court upheld the award of sole decision-making authority to the mother, where the father was anti-vaccination. See Pankratz v. Pankratz, M2017-00098-COA-R3-CV (Tenn.App. 2017). Also, in 2017, Oregon courts went one step further and upheld the trial court’s order that the parties “ensure that a proper vaccination schedule is in place.” In re: Marriage of Botofan-Miller & Miller, 406 P.3d 175 (Or.App. 2017). Iowa has even linked a parent’s stance on vaccinations to fitness for physical custody/access. “Iowa courts have historically favored a parent who provides immunizations when determining which parent should have physical care of the child.” In re Marriage of Asefi, 838 N.W.2d 869 (Iowa App. 2013). [1] The current anti-vaxxer movement is often traced back to 1982 when NBC aired a documentary called “DPT: Vaccine Roulette” which addressed a purported tie between the vaccine for pertussis and seizures in young children. [2] In 1998, a British gastroenterologist named Andrew Wakefield published a study associating the MMR vaccine with autism. The study has since been discredited and the paper was retracted in 2010. [3] New York, California, Maine, Mississippi, and West Virginia.
October 19, 2023
The Practice of Law
Jury Duty for Lawyers: Are You In or Out?
Jury service is both a civic duty and a privilege. Yet, attorneys rarely serve on juries. To be clear, there is a difference between reporting for duty and actually serving on a jury. For those attorneys who might consider reporting for duty, some question the value of the experience. In the County of Fairfax, Virginia, where I live and practice law, attorneys, along with judges, “first responders,” and some others are among those afforded an exception to jury duty. Every so many years, the County sends out a questionnaire to confirm eligibility to serve. I recently received mine and faced again the question of whether to exercise my right to choose not to serve, i.e., whether to opt in or opt out of jury service. That’s right, jury duty is optional for lawyers! (Please tell me I’m not the only one seeing the irony?!) [For a glimpse into the result of my previous decision to “opt-in” for jury duty.] I certainly don’t begrudge anything to those attorneys that choose to exercise their legal right to “opt out” of jury duty. After all, why expend all the effort when not being allowed to serve on a jury is practically a foregone conclusion – especially for a litigation attorney such as myself (and many of my colleagues with whom I’ve debated the issue)? I recognize that it is highly likely I will have wasted a great deal of time and effort only to be sent away without having been part of the deliberative process and/or helping decide a winner and loser at trial. Be that as it may, for me, at least, opting in is my only option. Why? As I stated at the outset, jury service is both a civic duty and a privilege. Expectation of a “strike?” For at least one of the lawyers trying a case, allowing an attorney on the jury is likely to be a bad thing since a lawyer-juror may be more likely to recognize weaknesses in the evidence presentation, including evidentiary gaps leaving material questions unanswered, and less likely, perhaps, to be persuaded by legal rhetoric. For these reasons and countless others, I suppose, it is very likely that a lawyer reporting for jury duty will be stricken with one of the “strikes” afforded to each of the parties as part of the jury selection process and, consequently, equally unlikely that the lawyer would actually end up serving on a jury. Our system would fall apart completely if everyone measured and determined their level of input by the relative expected impact on the overall process. Just as a single vote is unlikely to tip the scales of an election either way, the potential significance of one’s individual involvement in the judicial process cannot be overstated. I simply refuse to accept that the measure by which we ought to decide in the first instance whether to participate in the process at all is the extent to which we believe that our individual input is likely to be outcome-determinative. Rather, our willingness to serve, to make ourselves available to serve, as impartial decision-makers willing to share our time for others ought to equate to the level we would hope others might share of themselves should we ever find ourselves in need of a jury of our peers. Impacting the process? Whether one wants to accept responsibility for the consequences of one’s inaction, one’s non-involvement in the jury selection process impacts the end results. If the presence of an attorney is likely to cause one or the other party to exercise one of their limited strikes to remove the attorney from the jury, the absence of that attorney must necessarily mean that a strike remains available to be used on someone else. In other words, the ultimate makeup of the jury is skewed by the absence of an attorney who could have reported for duty, even if only to be struck. By not participating, therefore, an attorney has, unintentionally or otherwise, impacted both the process and the results merely by one’s absence. Jury of one’s peers? One accused of a felony is entitled to have the matter heard and decided by a “jury of one’s peers.” In a jurisdiction such as Fairfax, where lawyers abound, a jury pool with no lawyers would reflect less than accurately the “peer group” from which one’s jury is to be drawn. Consider, for instance, a lawyer-defendant on trial for a murder she didn’t commit. What ought the makeup of a jury pool of her “peers” properly include, if not a lawyer or two? My involvement would not assure an attorney on the jury for this hypothetically wrongly accused lawyer-defendant, but participating to the extent I am able amounts to playing my part and doing at least what is within my power to do. What if . . .? Maybe I get contacted and told to report to the courthouse. Maybe I get assigned to a jury pool, and report to a courtroom where lawyers preparing to try a case will ask a bunch of questions and decide whether having me sit on their jury is a good or bad idea. Maybe I survive all the strikes, get seated on a jury panel, and, after hearing all of the evidence, find myself in a jury room with the rest of that same jury panel deciding the fate of an accused criminal or the potential civil liability of parties to a civil case. Maybe I get elected foreman because those non-lawyers on the jury believe the attorney among them knows best what to do and how best to do it. Maybe we convict; maybe we acquit … or maybe we decide that one neighbor’s fence should be moved a foot to the left because it was improperly installed on the next-door neighbor’s side of the property line. Maybe, as a litigator myself, it proves to be an invaluable learning experience from which I am able to hone my craft. Maybe I gain a better appreciation for how all those potential jurors feel the next time I am the one selecting a jury. Maybe I make it as far as the first round of strikes and am sent home. I can live with that! I acknowledge the unlikelihood of my getting impaneled to help decide a case. I accept at the outset that most attorneys selecting potential jurors for their case will not see the potential value in having me in their jury box. I understand that it would be wishful thinking to believe I might find myself as the difference maker persuading fellow jurors to consider evidence in a different light, helping tip the balance in a case with life-altering consequences for the parties. For my money, opting out of jury duty is akin to not buying a lottery ticket – you can’t win if you don’t play. The PowerBall jackpot recently surpassed $1.5 Billion without a winner. My chances of winning were as infinitesimal as the next guy’s, . . . but I bought a ticket anyway. I’ll be sure to tell you all about it if my jury lottery number gets called. (P.S. I’m not making the same promise if my PowerBall number comes up!)
October 19, 2023
Estates and Trusts
Every Woman For Herself
Originally posted on 1/6/2021, content updated on 10/18/2023 I read a statistic that stopped me in my tracks: women are four times as likely to be a widow than men are to be widowers. Anecdotally, most of us know that women tend to outlive their partners but the fact that it is four times as likely should give us all pause. It should also prompt us as women to make sure that we have our proverbial houses in order, especially as we begin a new and brighter year ahead. How does one ensure her house is in order? Start with a list. The list should identify the assets that she owns, what the value of those assets are, and how she owns those assets. What are your assets? For practical purposes and for this exercise, your assets should be considered anything that you own that has value. Most people understand that their real estate, bank, brokerage, and retirement accounts are considered assets, but there are other items that might not immediately come to mind when you consider assets. Collectibles, artwork, expensive jewelry, interests in business, intellectual property, digital assets, inheritances, and insurance policies are also assets and often have significant value. It is important that these not-so-obvious assets are identified. How do you own those assets? Assets can be owned in various ways: jointly with or without rights of survivorship, assigned percentages, in a trust, and solely are just a few examples. If you are married, you may own your primary residence together as “joint tenants with rights of survivorship” with your spouse. This means that if your spouse predeceases you, your home will pass to you by operation of law. If instead you own vacation property as tenants-in-common with your brother and he dies first, his share will pass to his own heirs – which might not be you. This is an important distinction because if you own property with your brother and his children are the heirs to his estate, his 50% ownership of the property will pass to them. If that is the case, his children may want to sell the property. Do you have the finances available to buy them out? Or do you want to own property with your brother’s children? Maybe. But maybe not. What is the value of your assets? Asset valuation is a moving target. The market value of real estate and equities fluctuate daily so asset valuation should be updated at minimum, on a yearly basis. Even more complicated is determining the value of business interests, intangible assets, and specific tangible personal property that may be unique in nature. Take for example an art collection: oftentimes it is necessary to engage an art expert qualified in that particular genre to determine the market value of a piece or an entire collection. Or, even more complicated, the valuation of a closely held business in which you are the sole proprietor: what the value is during your life may not be the same after you die. It may be necessary to engage an expert to evaluate the value of your role in a business with or without you. Why is it important to understand the value of your assets? In a word, taxes. Depending on the value of your assets and who you plan to leave your assets to when you die could mean the difference in hundreds of thousands of dollars in taxes owed to the state or federal government upon your death, if not more. Knowing what your assets are worth will enable you to plan properly for who should inherit those assets and in what proportion. Beginning with a simple list is a good start in getting your own house in order; the list will better enable you to take the next step in planning. Knowing what you have will allow you to consult the appropriate professionals to create a functional estate plan that will serve your long-term goals and, in the end, protect you and your loved ones. After all, in the end, it is (four times as likely to be) every woman for herself.
October 18, 2023
Page 21 of 35
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