Family Law
LGBT Common Law Marriage
Originally posted on 2/28/2018, no content changes Pennsylvania was one of the few states that continued to recognize common-law marriage. Although common law marriage in Pennsylvania was abolished in 2005, it continues to be recognized retroactively, meaning that a common law marriage entered into prior to 2005 is still recognized in Pennsylvania. Thus, in the event of a termination of the relationship, parties to a common law marriage may go through the divorce process and are entitled to the same rights and benefits as parties who were formally wed. In 2017, a Pennsylvania Superior Court case confirmed that same-sex couples who entered into a common law marriage prior to 2005 are also entitled to the same rights and benefits accruing as a result of the marriage. This allows same-sex couples to gain rights they would otherwise not have due to the fact that same-sex marriage was not recognized in Pennsylvania until May 20, 2014, when marriage equality was achieved. These rights and benefits include but are not limited to equitable distribution of assets, interim support during the divorce process, alimony, and social security survivor benefits. All of these rights and benefits are fact-sensitive and vary in each case, which is why it is important to seek a family law attorney to discuss whether the facts of a specific case would qualify as common law marriage and/or what rights and benefits are applicable. For more information on this topic, please contact Megan Smith atmsmith@offitkurman.com.
October 18, 2023
Immigration Law
Marriage Based Immigration Process for a Spouse Living Outside the U.S.
Originally posted 1/26/2019, no content changes. If you are a U.S. Citizen or lawful permanent resident and are married to a foreign national who is living abroad, you may file an I-130 Petition for Alien Relative for them to come to the U.S.[1] Steps for the Entire Process: Filing the I-130: The first step of starting this process is for the U.S. citizen to file the I-130 petition along with all supporting evidence to the U.S. Citizenship and Immigration Services (USCIS). *See below for a check list of what is needed for the I-130 filing. Green Card Application: The second step of this process is after the I-130 petition is approved. USCIS will transfer the case to the National Visa Center (NVC) which will determine if the case is ready for consular processing. The NVC will assign you a case number. Once you receive your case number from NVC you will need to file the DS-260, Immigrant Visa Application online. Once submitted, you will print the confirmation page (you must bring it to the interview at the U.S. consulate). You will also be required to submit supporting documents to the NVC. Once all steps are completed with the NVC, they will transfer all of the documents to the consulate to process. Steps to Take Before the Consular Interview: Before the interview, the spouse beneficiary is required to attend a medical examination by a State Department-approved doctor. The doctor will give you a sealed envelope with the exam records which to be submitted during the interview. In many countries, a fingerprinting appointment must also be made at an application support center for the purpose of background security checks. Consular Processing – Interview and Approval: The consular processing requires that the foreign spouse will attend an interview abroad at a U.S. embassy or consulate in their country of residence. The interview is the final major step the green card process. A notice will be sent with an exact date, time and location for the interview. Some applicants may be lucky enough to receive an approval on the spot. Before traveling to the U.S., the immigrant fee will need to be paid to the USCIS online.[2] The spouse will then receive a visa stamp on their passport to travel to the U.S. Once in the U.S., a green card will be mailed to the couple’s U.S. address.[3] Check List for Step One – Filing the I-130, Petition for Alien Waiver Form I-130, Petition for Alien Waiver G-28, Notice of Entry of Appearance as Attorney or Accredited Representative (signed by U.S. Citizen) I-130A, Supplemental Information for Spouse Beneficiary USCIS filing fees* ($535 as of 11/15/18) One passport photo of U.S. citizen One passport photo of foreign spouse Proof of U.S. citizenship: copy of U.S. passport, Certificate of Naturalization Copy of marriage certificate Copy of any divorce decrees (if applicable) Copy of any name change documents (if applicable) Birth certificates of children born to you and your spouse together (if applicable) Photos of the couple together Documentation showing that you and your spouse have combined financial resources, or any other relevant documentation showing that there is a legitimate and ongoing marriage. This may include documentation of communication (WhatsApp, Email, Skype, etc.), Western Union receipts; documentation of visiting each other (such as travel itineraries), etc. *NOTE: Filing fees are subject to frequent revisions, as are the forms and requirements. For the current fee amounts, please check the USCIS website I-130 page. [4] This has the most current instructions, I-130 and I-130A forms and information on where to file. [1] https://travel.state.gov/content/travel/en/us-visas/immigrate/the-immigrant-visa-process/petition.html [2] https://www.uscis.gov/forms/uscis-immigrant-fee [3] https://www.boundless.com/immigration-resources/guides/us-family-spouse-citizen-abroad/ [4] https://www.uscis.gov/i-130
October 16, 2023
Family Law
Market Volatility, Retirement Savings and Divorce: Avoiding the Pitfalls in Present and Post-COVID-19 Times
Originally posted on 04/09/2020, content updated on 10/17/2023 Virtually every state in the union has, upon divorce, some form of retirement asset division based upon coverture.[i] The traditional method divides the retirement asset at its value upon the date of the commencement of the divorce action. Distribution of a portion of the asset to the non-employee spouse,[ii] while maintaining the inherent tax benefits of the resource (i.e., such as a 401(k) Plan, defined contribution plans and profit-sharing plans)[iii], requires the implementation of a Court Order known as a Qualified Domestic Relations Order or QDRO.[1] Drafting the QDRO to comport with the determined division to the non-employee spouse was rather uncomplicated when the financial markets were stable. But today is a new day, and one must ask what should be done in today’s market to both protect the asset’s value, while simultaneously not giving away too much? Let’s start with an example: In November 2019 Spouse A agreed to give Spouse B $500,000 when the profit-sharing plan in issue was valued at $1 million. The QDRO is drafted just so. By the time the QDRO is signed this month by the Court, there has been a downturn in the market and the value of the account has dropped to $750,000. Under the explicit terms of the QDRO Spouse A will still have to pay Spouse B $500,000 even if the account is now worth only $750,000. Spouse B is now very happy. Spouse A is fit to be tied! What to do? Avoid Flat Dollar Amounts; Specifically Address Earnings and Losses Flat dollar amounts payable to non-employee spouses create agonizing results when account values shift into retrograde. This is because no provision has been made to adjust the spouse’s amount to account for earnings or losses. That is not to say that the employee owner should not always agree to a flat dollar amount. If he or she is a gambling type – then such audacity may be a successful strategy. If you negotiate a flat dollar amount, you need to understand this risk. The employee-spouse should only agree to this if he/she is willing to take the risk. And only then, if there are sufficient funds to handle an award even if the account value drops significantly. The better way -- is to fix a percentage of the fund in issue to be distributed, and then add a provision along the lines of “including investment earnings and/or losses on that amount [the percentage amount] from [that date] until the date the funds are completely distributed to the [wife/husband].” Or, consider using the date of issuance of the judgment of divorce as the date to update all retirement account values attributable to post-commencement market forces. Even if the account is not actually divided for several years, each spouse will still get exactly what he or she would have received if the account had been divided on the agreed-upon date of division. It is also good practice (though rarely undertaken), with any retirement account to insist that the employee spouse transfer the funds into a stable value fund (if such is available), while the divorce and QDRO are pending. If this option is available, this is the best way to preserve the amount of the account, at least until the QDRO has been executed. Make Sure the QDRO is Prepared Promptly Each financial company, bank, brokerage house, retirement plan etc., has its own particular QDRO, or at least language that must be present in a QDRO. There is no reason to delay in investigating the form needed or the language necessary to undertake the transfer once the case is settled. In short, the QDRO should be researched long before the settlement agreement is inked. There is nothing stopping the attorney from doing so. In fact, this writer makes it a necessary part of the work undertaken as the case is being prepared for trial or settlement. Once the case resolves and the QDRO is prepared, it is then necessary to obtain the approval of the retirement plan’s administrator, so as to ensure that they will accept the form of QDRO and act upon it once it becomes a Court order. When the work is done in a timely manner, a QDRO can be filed at the same time as the settlement agreement. If that is not possible, it must be filed as soon as possible after the divorce is finalized because with further delay the non-employee spouse is putting themselves at risk to lose his/her benefits in a number of situations: The employee-spouse retires and starts drawing benefits without notifying their former spouse. The employee-spouse dies without a QDRO in place that locks in survivor benefits for the non-employee spouse. The employee-spouse takes a loan out that significantly reduces the account balance available for division pursuant to a QDRO. Conclusion Preparedness and diligent practice are the keys to success in ensuring a QDRO is properly written and ready to go. As we lived through a difficult time, and Courts were closed for all but emergency filings, it was more important than ever to get the QDRO process started for settled cases. Despite COVID-19, legal/QDRO teams for plan administrators moved quickly in their pre-approvals. Although we were not able to file the QDRO, best practices dictated having it ready for filing once the Courts opened, so that you did not end up at the bottom of the pile once normalcy returned. [1] Division of an IRA or a Roth IRA upon divorce does not require the use of a QDRO.[i] Historically defined as the condition or state of a married woman, considered to be under her husband’s protection. Used in modern parlance to mean the marital portion of an asset.[ii] Referred to in the law as the “alternate payee.” [iii] Division of an IRA or a Roth IRA upon divorce does not require the use of a QDRO.
October 14, 2023
Labor and Employment
In a 2019 Decision, the NLRB Establishes a (Not So) New Independent Contractor Test
Originally posted on 2/18/2019, content updated on 10/13/2023 In 2019, the National Labor Relations Board (NLRB) revised its independent contractor test, overturning a controversial standard established in 2014. The decision was a federal attempt to clarify the legal distinction between employees and independent contractors. Although many employers struggle to differentiate the two, one category is afforded certain rights and protections, while the other is not. Under the National Labor Relations Act (NLRA), employees are permitted to unionize; independent contractors are not. Similarly, contractors are not entitled to the same protection from unfair labor practices employees receive. Independent contractors also must pay their own income taxes, Medicare, and Social Security. Traditionally, the NLRB has used a 10-factor, common-law test to guide every determination about whether a worker should be classified as an employee or independent contractor under the NLRA. Those factors are as follows: The extent of control which, by the agreement, the master may exercise over the details of the work. Whether or not the one employed is engaged in a distinct occupation or business. The kind of occupation, with reference to whether, in the locality, the work is usually done under the direction of the employer or by a specialist without supervision. The skill required in the particular occupation. Whether the employer or the workman supplies the instrumentalities, tools, and the place of work for the person doing the work. The length of time for which the person is employed. The method of payment, whether by the time or by the job. Whether or not the work is part of the regular business of the employer. Whether or not the parties believe they are creating the relation of master and servant. Whether the principal is or is not in business. At the core of this test is the question of “entrepreneurial opportunity”: the measure of an individual’s ability to develop and manage a business on their own terms. In its decision in FedEx Home Delivery, 361 NLRB No. 55 (2014), the Board amended this long-standing system. First, the Board placed greater emphasis on “actual, not merely theoretical, entrepreneurial opportunity” and what effect an employer may have on a worker’s ability to pursue the opportunity. Second, the Board proclaimed it would start considering any evidence suggesting a company controlled a contractor’s capacity to operate an independent business. Together, these elements deemphasized the entrepreneurial opportunity question and placed a greater burden on companies to prove their workers were properly classified—that purported independent contractors were not, in fact, employees. On January 25th, 2019, the NLRB reversed its previous decision and returned to its pre-FedEx test. The news should come as a relief to employers who felt over-encumbered by the 2014 rule. Regardless, the decision does not erase the risk of a worker misclassification claim. Note that the NLRB considers the merits of every claim individually and that no single factor automatically sways the Board’s determination. If you have any questions about worker misclassification or any other Labor and Employment Law matter, please contact Richard Romeo at rromeo@offitkurman.com or 347.589.8547.
October 13, 2023
Franchise Law
Testing a New Franchise Concept
Originally posted 3/16/2017, no content changes. One of the toughest challenges an aspiring franchisor may face is selling its first franchise. Who would take the risk of buying a franchise from a franchise company that has no franchisees? For a few successful business owners, the idea of franchising may come from one or more customers who love the business concept and initiate the idea of buying a franchise even before the owner has taken the first step to prepare a franchise offering. But this rarely happens. Here’s another suggestion: If the aspiring franchisor has a successful business unit (a store or a restaurant, for example) that is operated well by a trusted manager, that manager might be a good candidate to buy the business at that location and become the company’s first franchisee. The manager will already know the business inside out, having successfully managed the business as an employee. The transaction would entail the sale of the existing business at a single location in which the buyer undertakes to continue operating as a franchisee of the seller. The buyer’s newly-formed company would sign a franchise agreement as part of the purchase of the business. To enhance the appeal of the transaction, the franchisor may extend credit for a portion of the purchase price or may waive the payment of any initial fee and give a grace period on the payment of any ongoing royalty or marketing fee. The idea is to maximize the fledgling franchisee’s chances of success. The franchisee’s success is crucial. This franchisee will be the first validator of the system for subsequent franchise buyers. With only one franchisee, the franchisor is unlikely to include financial performance representations in Item 19 of its franchise disclosure document (FDD). And without providing numbers in Item 19, the franchisor may not discuss numbers orally. Only an existing franchisee can do that. But what about the legal requirements of franchise registration and disclosure, which may include the requirement to prepare and disclose audited financial statements and much more? Is there a way that the aspiring franchisor can avoid the cost, the time and effort of preparing a detailed FDD and possibly registering it with the state? This answer is yes. There are ways to start small and test the concept before the franchisor is ready to prepare a disclosure document and to register the offering. The Federal Trade Commission’s trade regulation rule on franchising (the FTC Rule) excludes from the definition of a franchise the grant of the right to use a trademark where the license is the only one of its general nature and type to be granted by the licensor. So a single license should not trigger the federal requirement to prepare a disclosure document. State laws will usually not be a concern if the outlet is located in a nonregistration state, although the business opportunity laws may pose an issue. What if the outlet is located in a registration state? A few states (Indiana, Minnesota, New York and Washington) exempt the isolated sale of a franchise. New York’s single sale exemption calls for some explanation. The exemption applies when (i) the franchisor makes an offer to no more than two persons, (ii) the franchisor does not grant the franchisee the right to offer subfranchises, (iii) no commission or other remuneration is paid for soliciting the prospective franchisee, and (iv) the franchisor is domiciled in the state or has filed with the NY Department of Law its consent to service of process. (N.Y. Gen. Bus. Law §684(3)(c).) The single sale exemption in New York only applies by its terms to the state’s registration requirement. What about the disclosure requirement? Does this exemption save the franchisor from the time and expense if preparing a detailed FDD? Fortunately, the exemption does apply to both the registration and disclosure requirements. A franchisor’s obligation to provide disclosure arises under New York law when the franchise is subject to registration. Section 683(8) of the NY General Business Law states that “[a] franchise which is subject to registration under this article shall not be sold without first providing to the prospective franchisee, a copy of the offering prospectus, together with a copy of all proposed agreements relating to the sale of the franchise ….” This exemption will not extend beyond the first franchise sale in New York or any other state. Unless another exemption applies, the franchisor will be required to prepare a franchise disclosure document and possibly register the offering before selling its second franchise. That would be the time to form a new franchisor entity, open a bank account in the name of the franchisor entity and prepare an audit of the franchisor’s opening balance sheet. The licensor of the test franchise might be the operating company that owns the trademark. The test franchise agreement should allow the franchisor to assign the agreement to its affiliates so that the brand owner may assign the agreement to the newly-formed franchisor. In any event, the contact information for the first franchised business should be listed in the first FDD. Another approach that works for some companies in nonregistration states is to use the minimal payment exemption under the FTC Rule. A franchise sale is exempt from the FTC Rule if less than $570 is paid to the franchisor or an affiliate at any time before the franchisee’s business has been in operation for six months. Another exemption under the FTC Rule that can facilitate the first franchise sale without the need for an FDD is the insider exemption. In order to benefit from the insider exemption under the FTC Rule, one of the owners of the franchisor company must become a franchisee. This exemption applies when, within 60 days of the sale, the purchaser (or a person who owns at least 50% of the purchaser) has been for at least two years, an owner of at least a 25% interest in the franchisor. A few states also exempt insider sales (California, Rhode Island, South Dakota and Washington). Tom Pitegoff, Tom.Pitegoff@offitkurman.com
October 13, 2023
Bankruptcy
Demystifying the Bankruptcy Process - Part Five
Originally posted on 10/13/2020, content updated on 10/12/2023 The COVID-19 pandemic created a lot of turmoil in every industry and every company. Stay-at-home mandates forced most retailers, restaurants, and event venues to close their doors without realistic prospects of a return to pre-COVID operations. The risk of dealing with a company in financial distress was at an all-time high. Understanding the bankruptcy tools available to a company that is on the path to or already in a court-supervised reorganization can help you in managing and reducing this risk. Chapter 11 of the Bankruptcy Code governs the restructuring of businesses and individuals’ assets and liabilities. The proceedings under chapter 11 bring all stakeholders to one forum and facilitates global resolution of claims and liabilities. It may have a different impact on the different stakeholders – secured and unsecured lenders, trade creditors, employees, and landlords. What If You Are A Landlord? If you find yourself a landlord of a company that filed for a Chapter 11 protection, you can enjoy some unique rights that put you in a better position than any other typical unsecured creditor. However, vigilance is essential because highly accelerated sales procedures and first-day motions may negatively impact the landlord’s protections. The financial risk to a landlord is somewhat different in two discrete time periods: 1) before the debtor’s decision to assume or reject the lease and 2) after the debtor decides to reject the lease. In the first time period, the debtor tenant is typically still in possession and the landlord cannot re-let or market the space. Pre-Assumption/Rejection: Thanks to the special protections for commercial real estate landlords under Section 365(d) of the Bankruptcy Code, between the date on which the petition is filed and the date on which there is a judicial order approving a rejection or assumption of the lease, a debtor tenant is required to timely perform all of its obligations under the terms of the lease. Post-Assumption/Rejection: After the determination is made whether to assume or reject, landlords are subject to a risk of significant monetary loss if the debtor rejects the lease. The landlord's unsecured claim for termination damages is capped by Section 502(b)(6)(A) of the Bankruptcy Code, which limits a landlord's claim to the rent reserved for the greater of one year or 15 percent of the remaining term not to exceed three years. Even though most courts hold that a rejection can only occur with a formal court order, some courts have approved an effective date of the rejection can be earlier than the date of the order, making the rejection retroactive. This impacts a landlord’s ability to collect rent and enforce the lease prior to a debtor's decision to "assume" or "reject" the lease, described above. Some other risks to keep in mind: 1) Pre-bankruptcy lease termination is difficult and may be set aside by the bankruptcy court. A lease termination fee may be viewed as a preference or fraudulent conveyance, and 2) the debtor is entitled to assume despite defaulting on the lease and despite any contractual clauses contrary to that. The Bankruptcy Court in effect provides a federal cure right and the debtor can assign the lease despite anti-assignment clauses. In case you missed it, read part one, two, three, and four here. If you have a question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
October 12, 2023
Labor and Employment
Gender Identity and Expression Are Now Protected Characteristics Under New York State Law
Originally posted on 03/12/2019, content updated on 10/11/2023 On Sunday, February 24, 2019, the Gender Expression Non-Discrimination Act (GENDA) went into effect in the state of New York. The law safeguarded transgender and gender nonconforming people from discrimination by designating gender identity and gender expression as protected characteristics under New York’s human rights and hate crimes laws. Other protected characteristics in New York include sex, sexual orientation, race, religion, and disability status. In January 2019, former Governor Andrew Cuomo signed GENDA into law, following years of advocacy from transgender activists and other LGBTQ community leaders. GENDA prohibits gender identity and expression-based discrimination in the areas of employment, housing, and public accommodations. It is not the first state law to provide such protections. Eighteen other states, as well as the District of Columbia, have similar statutes in place. As of this writing, no analogous federal law exists. Multiple studies have shown that transgender and gender-nonconforming individuals face disproportionate rates of discrimination and harassment in the workplace. According to the United States Transgender Survey, for instance, 30% of transgender and gender nonconforming workers said they had been terminated, denied a promotion, or harassed at work due to their gender identity. Employers in New York should review and, if necessary, revise their policies and employee handbooks to conform to the new law. Best practices include the following: Ask employees about their preferred pronouns and use those pronouns in every form of communication. Allow employees to use their chosen names (even if a legal name change has not been completed) in email addresses, identification cards, and other organizational documents. Ensure every employee has access to a restroom that conforms to their gender identity—and consider creating gender-neutral, single-occupancy facilities or stalls. Adopt gender-neutral language in any dress code policy, and remove any language that identifies an item of clothing with a specific gender. To ensure GENDA compliance, employers should speak to their legal advisors as soon as possible. If you have any questions about this law or any other Labor and Employment Law matter, please contact me at rromeo@offitkurman.com or 347.589.8547.
October 11, 2023
Family Law
Deciding Whether to Have a Prenup?
Deciding whether to have a prenuptial agreement, often referred to as a "prenup," is a personal choice that should be made after careful consideration. While prenups are not necessary for every couple, there are several reasons why you might want to consider having one: Protection of Assets: Prenups can be a valuable tool for protecting your individual assets acquired before the marriage. This is particularly relevant if you have significant assets, such as property, investments, or a family business, that you want to safeguard in case of divorce. Clarification of Financial Rights and Responsibilities: A prenup allows you and your partner to outline each other's financial rights and responsibilities during the marriage, including how you will handle income, expenses, and debt. It can provide clarity and prevent misunderstandings about financial matters. Alimony and Spousal Support: Prenuptial agreements can specify the terms and conditions for alimony or spousal support in the event of a divorce. This can help avoid contentious disputes over financial support in the future. Protection for Heirs: If you have children from a previous relationship or plan to inherit significant assets, a prenup may ensure that your children's inheritance rights are protected, even if you divorce or pass away. Debt Protection: A prenup can define how pre-existing debts will be handled during the marriage and in the event of a divorce, preventing one spouse from being held responsible for the other's debts. Business Interests: If you own or plan to start a business, a prenup can outline how business assets and interests will be divided or protected in the event of divorce, ensuring the continuity of your business endeavors. Avoiding Lengthy and Costly Legal Battles: Divorce proceedings can be emotionally draining and expensive. A well-crafted prenuptial agreement can streamline the divorce process by clearly defining property division and financial matters, potentially reducing the time and money spent on legal battles. Preservation of Privacy: Divorce proceedings are often public, but prenuptial agreements can help keep sensitive financial details and personal matters private. This can be especially important for public figures or individuals who value their privacy. Open Communication: The process of creating a prenuptial agreement requires open and honest discussions about financial matters and expectations. This can promote healthy communication and a better understanding of each other's financial goals and values. It's important to note that prenuptial agreements are not solely about planning for divorce; they can also serve as a financial planning tool for the duration of your marriage. However, for a prenup to be legally enforceable, it must meet certain legal requirements, such as full financial disclosure, fairness, and voluntary agreement. Before deciding to have a prenup, it's advisable to consult with legal professionals who specialize in family law to ensure that your agreement is legally valid and tailored to your specific circumstances. Ultimately, the decision to have a prenuptial agreement should be made together with your partner, with open communication and mutual understanding as key principles in the process.
October 11, 2023
Family Law
Divorce: It’s Not About Winning or Losing - It’s About How You Play The Game
Originally posted 3/4/2020, no content changes. Legendary football coach Vince Lombardi once said, “Winning isn’t everything...it’s the only thing.”Well when it pertained to his beloved Green Bay Packers, this hall-of-famer might’ve been right. However, when it comes to divorce, what’s more important is “how you play the game.” Getting what you want out of a divorce comes down to not trying to pulverize your opponent (ex-spouse) on every play or argue with the referees (judge/mediator) on every call. It’s about playing smart and managing expectations. Here are some “coaching tips” that should prove helpful. Never expect a complete victory. Divorce law is set up to prevent a final score where there’s a winner and a loser. But yet that’s often easier said than done. That’s because you still feel entitled to everything, considering what your spouse has put you through. You’re 100% certain nobody could ever be so cruel, as much of a deadbeat, as unloving as a potted plant... Well, I can pretty much guarantee you, your judge has heard it all before in hundreds, if not thousands, of other cases. So don’t take it personally when the judge doesn’t admonish your spouse in front of you, or share in your heartache. That’s not their role. You need to realize that divorce cases are first and foremost, fact-intensive. They’re about conflict resolution not about your personal revenge. The court’s there to get you and your spouse separated, your assets allocated, debts squared away and your future support put in place. Most likely your court will go for a 50/50 split as often as possible with both you and your spouse left on equal footing at the end. And if you have children, the court will determine how custody is going to work...in your kids’ best interest and not yours. And while emotional support is crucial for you throughout the process, as Dionne Warwick sang so beautifully, “That’s what friends are for.” Then there’s the notion that you know what you should be awarded because you know of a case where a friend of a friend got everything he or she desired. Well, all cases are different, all lawyers and judges are different in how they present and interpret the law and each partner brings their own backstory to the proceedings. So while on the surface your case may look similar, appearances can be very deceiving. Also never expect a quick and easy resolution. Vince Lombardi knew a football game was won in the trenches, and usually in the fourth quarter. Very few divorces are cut and dry. There’s usually a lot of material for your attorney to get through and plenty of details you couldn’t have anticipated. Perhaps you and your spouse did “talk things out” but once a settlement proposal is drawn up, these issues look very different when they’re in black and white and in a legal document. And know that while you may have a “due date” when you want your divorce to be final, you’ll need to be flexible. Nearly every jurisdiction in the U.S. has a different waiting period, from thirty days to six months and beyond if children are involved. Divorce isn’t about control as much as it is about compromise. So while starting divorce proceedings can feel like you’re suddenly on an unfamiliar and scary playing field, speaking to a family attorney, like Sandy and Cheryl, will make it feel like your end zone is in sight and not twenty miles away in the distance.
October 10, 2023
Business
Choice of US Entity for Foreign Companies
Originally posted on 02/12/2019, content updated on 10/09/2023 Foreign companies (“FC”) wishing to establish a U.S. entity to expand their business activities in the U.S. will need to consider whether to form a corporation (Inc.) or a limited liability company (LLC). Likewise, an FC which wants to invest in an Inc. or an LLC will need to be familiar with certain tax and non-tax aspects of an Inc. and an LLC. Professional services, such as architecture and engineering, may require a special professional services entity (which will not be addressed in this article). An Inc. and an LLC are similar in that they both offer limited liability to their owners (shareholders of an Inc. or members of an LLC). In general (with some exceptions), an FC is not liable for the obligations of an Inc. or LLC. Following are some of the main differences between both entities: Taxation: An Inc. is subject to U.S. federal, state and local corporate income tax. An LLC is not subject to federal or state income tax (but may be subject to local tax, such as the New York City unincorporated business tax). Profits of an LLC are allocated or “passed-through” to its owners, who are subject to U.S. income tax on those profits, whether or not distributed, and who will need to file U.S. income tax returns for their share of the LLC’s profits. An FC which owns an LLC will need to obtain a U.S. federal taxpayer identification number and will need to appoint a person whom the IRS can contact for any tax matters of the LLC (so-called “partnership representative”). That person does not need to be a U.S. citizen or resident. Professional investors, such as venture capitalists, often do not want to invest in LLCs because of their flow-through tax treatment. In order to avoid pass-through tax treatment to the FC, an LLC can file an election with the IRS to be taxed as a corporation. Alternatively, the FC could establish a so-called “blocker” corporation which will own or invest in the LLC. Dividends from an Inc. to the FC are generally subject to a U.S. withholding tax or a reduced income tax treaty rate, if applicable. After-tax profits of an LLC are generally subject to a U.S. “branch profits” tax (or a reduced income tax treaty rate, if applicable) when distributed or deemed distributed to the FC. In contrast, net profits distributed to an owner in the U.S. are not taxed again. Management: An Inc. is managed by directors and officers. The directors are responsible for overall management of the Inc. Although they make certain management decisions, such as approving a major contract, they generally do not sign contracts on behalf of the Inc. Directors are elected and removed by the shareholders. The officers are responsible for day-to-day management and sign contracts and other documents on behalf of the Inc. The officers include a President/CEO, Secretary and a Treasurer. They are elected and removed by the directors. The directors and officers must be individuals. They do not need to be U.S. citizens or residents. All director and officer functions can be combined in one person. An LLC is managed by one or more managers or by the owners of the LLC. A manager can be either an individual or a corporate entity and does not need to be a U.S. citizen or resident. Formation costs: Although the costs of formation of an Inc. and an LLC are comparable, an LLC which will register in New York will need to publish its formation in two newspapers in New York. Publication costs can make the formation or registration of an LLC in New York more expensive than that of an Inc. Corporate Organizational Documents. Both an Inc. and an LLC are formed by filing a formation document with the secretary of state of the state in which the entity will be formed. An Inc. will also need to have several additional organizational documents, including a statement of "incorporator" for the election of the first director(s), a written consent of the first director(s) electing the first officer(s), bylaws, issuance of the first shares to the FC and a shareholders’ agreement if more than one shareholder. An LLC will only need an operating agreement between the LLC and its owner(s) providing for, among other things, the management of the company and the allocation and distribution of profits and losses. Sharing of Profits and Losses. Shareholders of an Inc. share in the profits in proportion to their ownership percentages. Owners of an LLC share in the profits and losses as agreed to between the owners in the operating agreement. If an FC invests in a joint venture company and wishes to allocate profits and losses to the joint venture partners in a ratio which is different from the ownership percentages, the FC should consider forming the JV entity as an LLC. All in all, generally, unless there is a need for pass-through tax treatment, management by a corporate entity, or a flexible joint venture entity, an FC will probably prefer to establish or invest in an Inc. instead of an LLC.
October 9, 2023
Labor and Employment
New York City Employers: Do You Know All the Labor and Employment Laws that Apply to Your Business?
Originally posted on 06/11/2019, content updated on 10/09/2023 Business owners in and around New York City have a greater number of legal obligations than do employers in almost every other region in the United States. Why? Because New York City business owners stand at the intersection of three sets of rigorous labor and employment laws. Federal Laws that Apply to Business Owners in and Around New York City Regardless of their location, size, or industry, all employers in the US must follow certain labor and employment laws. These include, but are not limited to, the following: The Occupational Safety and Health Act (OSHA), which requires employers to maintain safe working environments. Title VII of the Civil Rights Act, which protects workers from discrimination on the basis of race, color, religion, sex, age, national origin, and other specified characteristics. The Americans with Disabilities Act (ADA), which prohibits discrimination on the basis of disability and obligates employers to provide reasonable accommodations for people with disabilities. The Family Medical Leave Act (FMLA), which requires certain “covered” employers to provide employees with unpaid leave under certain qualified circumstances. Other federal labor and employment laws that may impact your business include regulations related to employee benefits, unions, family and medical leave, veterans, and more. State Laws that Apply to Business Owners in and Around New York City In addition to federal laws enforced by the Department of Labor, New York employers face a large number of state-level regulations and requirements in categories such as the following: fair employment equal pay salary history questions overtime background checks healthcare and benefits pregnancy accommodations paid family leave and other paid time off whistleblower protections smoke-free workplaces The state’s equal employment opportunity (EEO) rules are broader as well. Employers may not discriminate against victims of domestic violence, on the basis of an individual’s sexual orientation, or—as codified by the recent passage of GENDA—on the basis of gender identity and expression. Local Laws that Apply to Business Owners in and Around New York City New York City has a wide array of workplace laws, many of which reach beyond state and federal rules in areas such as the following: sexual harassment and discrimination in the workplace (read about the “Stop Sexual Harassment in NYC Act” here) paid sick leave employees’ rights to organize safe and healthy workplaces Also in place in New York City are various industry-specific regulations, creating additional requirements for fast food establishments, groceries, apparel makers, nail salons, construction firms, and other particular kinds of businesses. Navigating Your Many Legal Requirements The sheer number of laws out there can be dizzying for business owners—and this overview is far from exhaustive. Moreover, if you are located in Nassau, Suffolk, or Westchester Counties in New York, or in Bergen County in New Jersey, there may be additional laws in those particular counties to keep in mind. To stay on top of the myriad rules that apply to your business, you will need more than a simple list of what you can and cannot do. As a business owner, you need to make sure to a) comply with all applicable laws, and b) understand the nuances of and interactions between those laws. For example, you can ask a potential employment candidate about a felony conviction in New York State, but in NYC, you can only ask that question after a conditional offer of employment has been made. In either case, you may not use that felony conviction to deny the applicant the job unless that conviction relates to the job. Say you are hiring someone as a school bus driver, and they were arrested for fraud and embezzlement. As long as they will not have any access to money in their role, you might have a problem denying that person the school bus job even in light of their past conviction. This might not be the case, however, if that prior conviction was for sexual offenses against children. In any event, if the applicant is denied employment based upon that conviction, the employer must provide a written statement explaining the reasons for this denial within 30 days of the applicant’s request. These are critical concerns for any employer, especially any small to mid-sized company. A single lawsuit brought under federal, state, or local regulations can have catastrophic effects on the future of your business. Until next time, if you have any questions about the rules that apply to your business, or any other Labor and Employment Law matter, please contact me.
October 9, 2023
Family Law
It Took Seven Days To Create The World, And Nearly Fifty Years To Afford Antidiscrimination Protection For All
…the arc of the moral universe is long, but it bends toward justice! [i] Originally posted on 02/25/2021, content updated on 10/06/2023 On May 14, 1974, Bella Abzug, Representative for New York's 20th Congressional District, introduced into Congress the “Equality Act of 1974,” the first piece of federal legislation to address discrimination based on sexual orientation. The act would amend Title VII of the Civil Rights Act of 1964 to prohibit discrimination against gays and lesbians in employment, housing, and public accommodations. Ms. Abzug’s Equality Act, as then presented, failed to pass and was thus relegated to the black hole of unsuccessful legislation and consigned to the annals of LGBTQIA history. Nearly fifty years later, on February 18, 2021, Representative David Cicilline and Senator Jeff Merkley reintroduced the Equality Act,[i] which afforded sweeping, clear, concise, and explicit anti-discrimination protections for all LGBTQIA people across key areas of life, including employment, housing, credit, education, public spaces and services, federally funded programs, and jury service.[ii] The Equality Act[iii] will update existing federal nondiscrimination laws, including the Civil Rights Act of 1964, the Fair Housing Act, the Equal Credit Opportunity Act, the Jury Selection and Services Act, and several laws regarding employment with the federal government—to unambiguously incorporate sexual orientation and gender identity as protected characteristics. The legislation also explicitly amends the Civil Rights Act of 1964 to extend sex discrimination protections to public spaces and services, including retail stores, banks, legal services, and transportation services. These changes strengthen existing protections for everyone.[iv] Questioning the need for passage of the Act, some have pointed to the June 2020, groundbreaking Supreme Court ruling in Bostock v. Clayton County[v], which made clear that employment discrimination on the basis of sexual orientation or gender identity violates Title VII, and have argued that the Supreme Court’s decision can be stretched in its interpretation to protect LGBTQIA people from discrimination wherever federal law prohibits sex discrimination. The ruling in Bostock is too narrow though, for such a broad interpretation. The Bostock decision is based solely on the very particular facts and legal issues then present before the Court, and does little but scratch the surface in addressing discrimination against LGBTQIA people. The Equality Act however, in its present state, covers it all. The Legislative Process Care must be given however, before the celebration begins. The excitement of the re-introduction of the Equality Act has distracted many from the fact that its passage is not guaranteed. Our legislative process, embodied in our Congress, provides ample opportunity for consideration and debate on every bill presented for passage into law. The open and full discussion provided under the Constitution can result in the notable improvement of a bill by amendment or the demise of a bill by assault and abatement.[vi] Conclusion The patchwork nature of current sex discrimination laws leaves millions of people subject to uncertainty and potential discrimination that impacts their safety, their families, and their day-to-day lives.[viii] Absent the passage of the Equality Act as it is currently constructed, lesbian, gay, bisexual, transgender, queer, intersex and asexual, Americans will still lack basic legal protections in states across the country. [i] H.R.5 - Equality Act 116th Congress (2019-2020). [ii] House Expected To Vote On Sweeping LGBTQ Rights Bill Next Week, NBC News, 2/18/21. [iii] Originally introduced in 2019, the Equality Act passed the Democrat-controlled House in May 2019, but it stalled in the Republican-controlled Senate. [iv] HRC, Take Action, Pass the Equality Act Now, 2/17/21. [v] 590 U.S. ___ ; 140 S. Ct. 1731; 2020 WL 3146686; 2020 U.S. LEXIS 3252. [vi] Much like what happened to the Equality Act of 1974. See also, Congress.gov, How Our Laws Are Made. [vii] Time Magazine Why Federal Laws Don’t Explicitly Ban Discrimination Against LGBT Americans, 3/19. [viii] Lambda Legal, Lambda Legal Hails Introduction of the Equality Act, 2/18/21.
October 6, 2023
Business
U.S. Inbound M&A and Investment Transactions May Be Subject to CFIUS Review
Originally posted on 03/26/2020, content updated on 10/06/2023 Foreign companies and investors who are acquiring or investing in a U.S. company should consider whether their U.S. inbound transaction will be subject to review by the Committee on Foreign Investment in the United States (CFIUS). On February 13, 2020, regulations (31 CFR §§800, 802) (the “Final Regulations”) issued by the U.S. Department of the Treasury went into effect, which expanded and clarified CFIUS’ jurisdiction over certain foreign investments in U.S. companies or real estate. CFIUS is an interagency committee chaired by the Secretary of the Treasury that is authorized to review certain transactions involving foreign investment into the U.S. to determine the effect of such transactions on national security. If a transaction could pose a risk to U.S. national security, the U.S. President may suspend or prohibit the transaction, or impose conditions on it. Before August 2018, CFIUS’s jurisdiction was limited to transactions in which a foreign investor acquired control of a U.S. business (which involves certain blocking rights). CFIUS’s jurisdiction was expanded in August 2018, when President Trump signed the Foreign Investment Risk Review Modernization Act of 2018 (FIRRMA) into law. The Final Regulations implement FIRRMA. FIRRMA covers not only certain controlling/majority investments but also certain non-controlling/minority investments and certain investments in real estate located near sensitive government sites (including airports, harbors, and military sites). This article will focus on non-controlling investments in U.S. companies. A non-controlling investment is subject to CFIUS’ jurisdiction if it (i) is an investment in a U.S. business involved in certain critical technologies, critical infrastructure, or sensitive personal data of U.S. nationals (referred to as “TID” businesses), and (ii) grants the foreign investor any of the following: (a) access to any material non-public technical information of the U.S. company, (b) membership or observer rights on the board of directors or equivalent governing body of the U.S. company or the right to nominate an individual to a position on the board of directors or equivalent governing body, (c) any involvement, other than through voting of shares, in substantive decision-making of the US company. Critical technologies are defined as items on certain U.S. export regulations (such as the U.S. Munitions List and the Commerce Control List) and other regulatory regimes and include certain emerging and foundational technologies controlled under the Export Control Reform Act of 2018 (“ECRA”). The Bureau of Industry and Security (BIS) is working on proposed rules to define “emerging and foundational technologies” that will be subject to future export controls. BIS is considering technologies such as (a) artificial intelligence and machine learning technology; (b) logistics technology; (c) robotics; and (d) advanced surveillance technologies, such as faceprint and voiceprint technologies. Critical infrastructure is generally defined as systems and assets, whether physical or virtual, so vital to the U.S. that the incapacity or destruction of such systems or assets would have a debilitating impact on national security. Critical infrastructure includes certain IP networks, telecommunications services, interstate oil pipelines, crude oil storage facilities, rail lines, public water systems, and electric power generation, storage, or transmission facilities. A list of types of critical infrastructure can be found in Appendix A to Part 800 of the Final Rules. Sensitive personal data include the following categories: financial, consumer report data, geolocational, health data, non-public electronic communications (including emails and chats), Federal ID card data, U.S. government personnel security clearance data, and genetic testing data. The categories are covered under FIRRMA only if the U.S. business: (a) targets or tailors its products or services to sensitive U.S. Government personnel or contractors, (b) maintains or collects such data on greater than one million individuals, or (c) has a demonstrated business objective to maintain or collect such data on greater than one million individuals and such data is an integrated part of the U.S. business’s primary products or services. Genetic testing data from databases maintained by the U.S. government and routinely provided to private parties for research are exempted, so as not to capture U.S. businesses using common datasets for research purposes. Examples of transactions that were blocked by CFIUS involved a dating app for LGBT individuals (Grinder LLC) and an online patient forum (PatientsLikeMe). Under the Final Regulations, non-controlling investments by certain investors from Canada, the UK and Australia are exempted. Furthermore, investments in TID businesses by U.S. investment funds with foreign limited partners will not be subject to CFIUS review if (i) the fund is managed exclusively by a U.S. general partner (or equivalent), (ii) the firm's advisory board on which the foreign limited partner sits does not have the ability to control in any way the investment decisions of the investment fund, (iii) the foreign limited partner does not have the ability to control the fund, including through investment decisions, ability to approve or disapprove decisions made by the managing partner, or unilaterally determine the compensation of the general partner, and (iv) the limited partner does not have access to material, nonpublic technical information. Filings with CFIUS are voluntary, except for the following investments which require a prior filing with CFIUS: (i) investments in critical technology businesses operated within one of twenty-seven specific industries, as defined by the North American Industry Classification System (NAICS) codes, listed in Appendix B to Part 800 of the Final Rules, as well as (iii) investments by foreign persons in which a foreign government (other than Canada, the UK, or Australia) owns a substantial stake. Filings related to investments in critical technology businesses were made mandatory in October 2018 when FIRMA instituted a “Pilot Program”. CFIUS stated, however, that it expects to replace the Pilot Program system based on NAICS codes with a system based on export control licensing requirements. Even if a prior filing with CFIUS is not required, the parties should consider filing on a voluntary basis in order to avoid a possible rejection or modification of the transaction after closing. Filings with CFIUS may require a filing fee not to exceed $300,000. Voluntary and mandatory CFIUS filings can be done by a short declaration or longer notice. Mandatory declarations must be filed 45 days before the close of a transaction. CFIUS has 30 days to render a decision on a mandatory declaration but may at that time require a full notice, which may delay the transaction substantially. CFIUS has 130 days to decide on a notice. Failure to submit a mandatory filing may result in a penalty of up to the greater of $250,000 or the value of the transaction. If you have any questions or would like to discuss any of these issues, please contact me at 212-545-1900 or mbloemsma@offitkurman.com.
October 6, 2023
Labor and Employment
Employers, Know Your FLSA Basics
Originally posted on 07/5/2019, content updated on 10/05/2023 Are you aware of your obligations under the Fair Labor Standards Act (FLSA)? Do you understand the differences between the FLSA and similar state statutes? A surprisingly large number of decision-makers in established businesses are unable to sufficiently answer these questions. That can be a serious problem. Uncertainty around labor laws can expose a company to numerous legal and financial risks, including lawsuits and Department of Labor investigations that may result in the company owing back wages plus civil penalties and even attorneys’ fees. What Is the FLSA? The FLSA is a federal statute that guarantees “non-exempt” employees the right to a minimum hourly wage, as well as time-and-a-half “overtime” compensation for any hours worked in excess of 40 hours in any given week. Since its passage in 1938, the law has been amended numerous times, but some form of minimum wage and overtime provisions have generally remained in place. However, there are also many state and local minimum wage and overtime laws in place and if those laws provide greater benefits or protections to workers than does the FLSA, then in such cases, employers must comply with those more stringent state and local laws. First, under certain circumstances and in certain industries and trades, not all employees must be paid an hourly wage equal to the minimum wage. A worker who “customarily and regularly” earns a certain amount of tips each hour, and that amount varies by industry and geographic location in New York State, may be paid an hourly wage less than the New York minimum wage, so long as the employee’s total compensation is equal to or greater than what the employee would make otherwise. Second, some employees, such as executives and salespeople, may also be exempt from overtime pay under the FLSA. Employers must be careful when classifying workers as exempt or non-exempt, as the distinction is nuanced and multifaceted. Third, the FLSA is federal law. It applies to many businesses in the United States. However, employers must also follow wage and hour laws in any state and city in which they have employees—and state and local rules may hold businesses to different standards. For instance, New York’s minimum wage is higher than the federal minimum wage. In this and any other similar instances, the highest minimum wage applies. How Can You Avoid an FLSA Violation? FLSA violations can result in substantial damages for employers. Businesses that fail to properly pay their employees may face DOL penalties of tens of thousands of dollars, or even millions. To stay on the right side of the law, stick to the following practices: Properly classify every employee as exempt or non-exempt. Keep accurate records of how many hours your employees work each week. Make proper calculations for overtime. An experienced labor and employment attorney can help you understand your legal obligations, address any existing liabilities, and ensure compliance with the FLSA as well as state and city wage and hour laws. If you have questions about this or any workforce legal matter, please contact me. Until next time, if you have any questions about the rules that apply to your business, or any other Labor and Employment Law matter, please contact me.
October 5, 2023
Family Law
How Much Will My Divorce Cost?
One of the first questions a client asks is, “how much will this cost me?” While there is no way to really know how much the process will cost, there are some significant factors that can impact your fees. Opposing Party/Opposing Counsel. Unfortunately, there are some attorneys who are unable or unwilling to provide their clients with reasonable options and steer the case in a direction that will result in a fair and equitable resolution. If the opposing party and/or their counsel is not reasonable or minded in resolutions and problem-solving, the cost will be higher than if reasonable expectations can be set early on. It is helpful if the roadmap to get to a win/win resolution can be the focus of the case. There are several processes that can be utilized to reach an amicable resolution without the need for litigation, which can be emotionally and financially expensive. As a result of anger or vindictiveness, some parties are unwilling to focus on the best interest of the family, especially when children are involved. And unfortunately, there are attorneys who encourage detrimental behavior. The combination of the two can be very expensive. We recommend that clients review their invoices each month. If there are questions regarding any charges, they should be brought to the attorney’s attention before the next billing period. If the attorney does not provide a satisfactory response for the charge, the client should interpret that as a red flag. Certainly, choosing the right attorney to represent you impacts your fees. It is worth spending money on the front end to consult with several attorneys until you find the right fit. Your instinct should never be ignored if you feel that the attorney with whom you are consulting is not responsive to your concerns and needs. Litigation is expensive for clients and profitable for attorneys, so you might question an attorney who pushes litigation from the onset without discussing other options that you might try to utilize to resolve your issues before filing for divorce. Complexity of the issues. If your case involves every issue before the court (e.g., custody, access, child support, division of marital assets, alimony, attorney’s fees), your matter will be more expensive. There are times when one cannot resolve all issues without the court’s intervention. However, the more issues you resolve on your own, the less expensive the process will be. Along with complex issues may come the cost of experts (forensic business valuations, forensic tracing of assets, forensic analysis of income, child custody evaluator, vocational rehabilitation, appraisers, and the list goes on). You can alleviate some expenses by being organized and gathering as much information/documentation as you can for your attorney/experts. Some clients simply do not know or have access to their/their spouse’s asset information, and the process of uncovering any undisclosed, hidden, or unknown assets can be time-consuming and costly. Before you engage an attorney, be sure to have resources available from which to pay your legal fees. This may include credit cards, a home equity line of credit, borrowing from friends/family, or liquidating assets. Your attorney should assist you with a plan as to what option may work best for you.
October 5, 2023
Business
New Mandatory CFIUS Filing Rule for Critical Technologies
Originally posted on 10/12/2020, content updated on 10/04/2023 On September 15, 2020, the U.S. Treasury Department issued a rule changing the requirements for mandatory filings with CFIUS for a national security review of certain investments by foreign investors in U.S. businesses with critical technologies. As of October 15, 2020, CFIUS no longer reviews whether the critical technology of the U.S. company is used in one of 27 specified industries identified by their North American Industry Classification System ("NAICS") codes (the NAICS test). Instead, critical technology requires a CFIUS filing if the export of the technology from the U.S. to the foreign investor requires a license from the U.S. government (export control test). In a previous article, the CFIUS filing requirements were addressed in general, including the NAICS test (learn more here »). Whether a CFIUS filing is required is an important issue that needs to be addressed when a foreign company invests in a U.S. technology company. Failure to submit a mandatory filing may result in civil penalties up to the greater of $250,000 or the value of the transaction. The NAICS test continues to apply to transactions for which the signing or the closing occurred on or after February 15, 2020, and before October 15, 2020. The determination of whether the target U.S. company is engaged in "critical technologies" activities is assessed as of the date of signing a binding written agreement for the transaction. This means that if a technology is declared "critical" by the government after signing the agreement, it is not subject to the mandatory filing requirement. The universe of "critical technologies" will likely expand as the government continues to identify "emerging" and "foundational" technologies under the Export Control Reform Act of 2018 (ECRA). A U.S. license or authorization may be required under one of the four major U.S. export control regimes: (i) the U.S. Department of State's International Traffic in Arms Regulations (the "ITAR"); (ii) the U.S. Department of Commerce's Export Administration Regulations (the "EAR"); (iii) the Department of Energy's regulations governing assistance to certain foreign atomic-energy activities; and (iv) the Nuclear Regulatory Commission's regulations governing the export and import of certain nuclear equipment and material. Of the export control regimes, the EAR is the one that will be most likely relevant for investments in technology companies. The EAR controls the export and reexport of most commercial items (commodities, software, and technology) and are administered by the Bureau of Industry and Security (BIS), which is part of the U.S. Commerce Department. Only a small percentage of all U.S. export transactions require licenses from the U.S. government, including so-called dual-use items (both civil and military). To determine whether an item is subject to the EAR, one should refer to the EAR's Commerce Control List (CCL) to see if it has an Export Control Classification Number (ECCN). If the item falls under the jurisdiction of the U.S. Department of Commerce and is not listed on the CCL, it most likely will not require an export license. Depending on the destination, end-user, or end use of the item, however, even such an item may require an export license. If the export control laws provide for any license exceptions, a CFIUS filing will still be mandatory unless any of the EAR license exceptions for technology and software (unrestricted) (TSU), encryption (ENC), and strategic trade authorization (STA) apply. Certain license exceptions may contain procedural requirements. For example, the ENC license exception requires submission of a classification request to the Bureau of Industry and Security 30 days before export. If a license exception imposes certain procedural requirements before export, those procedural requirements will have to be met in order for the CFIUS filing to be non-mandatory. Since export licenses are much more likely to be required for exports to countries subject to stricter U.S. export controls, such as China and Russia, investors from those countries will become subject to heightened CFIUS review. Under the new export control test, not only will it need to be reviewed whether the (hypothetical) export of the technology from the U.S. to the foreign investor would require a license from the U.S. government, but also to the home countries of those who hold a 25 percent direct or indirect interest in the foreign investor.
October 4, 2023
Estates and Trusts
Have You Got the Power (of Attorney)?
Originally posted on 11/19/2020, content updated on 10/04/2023 The New York Durable Power of Attorney is an integral part of every estate plan, but it is also the one document that clients are most trepidatious about signing. Their concern is not unfounded. The Power of Attorney quite literally grants someone else the power to make decisions about another’s finances, property, business matters, taxes, gifts, investments and all things related. Why Do I need a Power of Attorney? Anyone over the age of 18 who has a bank account should have a Power of Attorney. If you own assets in your name, no one else can assist you in managing those assets if you cannot manage the assets yourself due to a short-term illness or incapacity, without a Power of Attorney. Many incorrectly presume that a spouse or family member can simply step-in and make any necessary financial transaction for another without a Power of Attorney in place; this is not the case. In fact, retirement assets, real property (even if owned jointly,) and solely-owned assets may not be accessed by anyone, including a spouse, unless she has a Power of Attorney signed by you, giving her permission to access those assets – even for simple tasks like paying bills. How Does the Power of Attorney Work? The Durable Power of Attorney allows you, the principal, to appoint another person, an agent, to make financial decisions for you. The decisions that you allow your agent to make can be tailored to your specific situation. Sounds easy, right? Not exactly. There is a tension that exists between giving your agents all the powers available under the law to act for you and very narrowly tailoring those powers to specific situations. Make the Power of Attorney too broad and your agent could step into your shoes and make any and all financial decisions on your behalf – decisions that you might not want another person to make for you. An overly restrictive Power of Attorney could very well leave your agent in a position where she cannot assist you in managing your assets in the way that you intended or in your best interest, rendering the Power of Attorney useless. Another important point is that Powers of Attorney are effective the moment you sign them, even prior to your incapacity. Practically speaking, your agent has the ability to use the Power of Attorney right away, which can be a worrying prospect. As such, it is vital that you choose someone who will act in your interest and not outside of the scope of what you intended. It should be noted that Powers of Attorney can be revoked at any time if the principal has the mental capacity to do so, and it is no longer effective upon the death of the principal. Who Should be your Power of Attorney? The who is the most important part of the Power of Attorney. Because your agent can be granted sweeping powers under your Power of Attorney if you allow it. She must be someone that you trust implicitly to make decisions based on the guidance you provided to the agent, and if you never gave direction, then the agent must act with your best interest in mind. Your agent should be responsible, honest and detail-oriented. The good news is that when New York State amended the law relating to the Power of Attorney in 2009 (and again in 2010,) it included the provision that the agent you appoint must also sign the Power of Attorney accepting your appointment of her and recognizing that she has a fiduciary obligation to the principal. The form explicitly advises the agent that in accepting the role, any transaction that she makes must be done in the best interest of the principal, not of the agent. The agent also has a fiduciary duty to keep receipts and documentation for transactions made under your Power of Attorney, never to co-mingle funds with theirs, and to avoid conflicts of interest. If your agent does not follow your wishes, or acts against your best interest, your agent could be held liable for violating the law. What Happens Without a Power of Attorney in Place? If you become incapacitated and you never got around to signing a Power of Attorney, or because you were too fearful of trusting someone as your agent, the only option is guardianship. A guardianship proceeding is a very serious legal process in which another party is required to appear in court and prove to a judge with medical evidence that you are not able to manage your own finances. The judge may appoint a family member, a friend, or a lawyer (whom you never met before) to take control of your finances. The court proceeding itself, while not only emotionally difficult for those involved, is quite expensive and should be avoided if at all possible. It is crucial that the option of a Power of Attorney be discussed with your estate planning lawyer. You should take great care in considering not only who should fill the role as agent, but also which powers you may wish to grant the agent.
October 4, 2023
Labor and Employment
New York’s Harassment and Discrimination Laws Just Changed—Again. Is Your Business Up to Date?
Originally posted on 09/16/2019, content updated on 10/03/2023 Less than a year after substantial changes were enacted in 2018, New York State laws concerning harassment and discrimination in the workplace are changed once again. An omnibus bill amended various provisions of the New York State Human Rights Law (NYSHRL), the General Obligations Law, the Civil Practice Law and Rules, and the New York Labor Law. Continue reading for an overview of what the new laws entail, along with their effective dates. Expanded Coverage for Employers and Workers Small businesses, take note: NYSHRL now applies to all private employers. That means every person or entity, regardless of size, must comply with state-level harassment prevention regulations, including annual harassment prevention training. The statutes also broadened the scope of worker protections. Domestic workers, such as housekeepers and gardeners, are now covered under laws prohibiting employment discrimination. Non-employees, including independent contractors, subcontractors, vendors, consultants, and other service providers, are similarly protected from any unlawful discriminatory practices—not only sexual harassment. Effective date: Already in effect as of October 11, 2019 New Sexual Harassment Prevention Policy Document Requirements Employers must now provide every employee with a written notice containing the employer’s sexual harassment prevention policy. This document must be provided at the time of hiring and once per year, during annual anti-harassment training. The policy should be available in English as well as any other language an employee identifies as their primary language. Employers need not attempt to craft such notices alone, as The New York Department of Labor (DOL) is responsible for preparing model sexual harassment prevention policy and training templates. If an employee requests a template in a certain language that is not available, the employer can provide the employee with the English-language notice. Employers will not be penalized for errors or omissions in any non-English forms created by the DOL. Effective date: Already in effect as of August 12, 2019 The End of the “Severe or Pervasive” Standard Previously, allegations of harassment or other forms of workplace discrimination needed to demonstrate “severe and pervasive” misconduct. The new laws remove this standard. Additionally, alleged harassment no longer needs to be “unwelcome.” The laws do stipulate, however, that “the harassing conduct [must] rise above the level of what a reasonable victim of discrimination with the same protected characteristic would consider petty slights or trivial inconveniences.” Effective date: Already in effect as of October 11, 2019 Faragher–Ellerth Defenses Thrown Out In New York and elsewhere, employers have often successfully avoided liability for harassment by using the so-called “Faragher–Ellerth” defense. The defense essentially reasons that employees should first report any incident internally, so that the employer can have the opportunity to resolve or remediate the issue before commencing any legal proceedings. New York’s new laws eliminate this defense. In other words, an employee no longer needs to file a complaint with their employer before taking the matter to court. Effective date: October 11, 2019 An Across-the-Board Ban on Mandatory Arbitration in Employment Agreements The New York laws enacted in 2018 prohibited employers from requiring mandatory arbitration to resolve sexual harassment claims. The amendments widened this to include all kinds of employment discrimination. Effective date: Already in effect as of October 11, 2019 Current Restrictions on NDAs Employers can no longer require, as a condition of the settlement of any employment discrimination claim, any terms or conditions which prohibit disclosure of the underlying facts and circumstances of the discrimination claim, unless such is the complainant’s preference. In that case, the complainant will have 21 days to consider that preference, and such confidentiality provisions must be memorialized in a separate writing signed by all parties. Additionally, for a period of seven days, the complainant shall have the right to revoke such confidentiality agreement, and such confidentiality agreement shall not become effective or enforceable until such revocation period has expired. Effective date: Already in effect as of October 11, 2019 Future Restrictions on NDAs Any provision in any contract between an employer and any employee or potential employee entered into after January 1, 2020, which prohibits the disclosure of factual information related to a future claim of discrimination is void and unenforceable unless such provision notifies the employee or potential employee that it does not prohibit him or her from speaking with law enforcement, the employee’s attorney, or any federal, state, or local agency that enforces employment discrimination laws. Effective date: Already in effect as of January 20, 2020 A Longer Statute of Limitations for Sexual Harassment The statute of limitations for sexual harassment claims has been extended from one year to three years after the date of the alleged harassment. The statute of limitations for all other forms of employment discrimination remains at one year. Effective date: Already in effect as of August 12, 2020 (applies to all claims filed after this date). Punitive Damages and Attorney Fees Under the amendments, the DOL and the courts can, where appropriate, in their discretion, issue an award of punitive damages in favor of an employee who prevails in an employment discrimination proceeding. Previously, New York Courts and the DOL had the discretion to award attorney fees to a prevailing party in employment discrimination proceedings. That discretion has now been removed as the amendments require the courts and the DOL to award attorney fees to a prevailing party in an employment discrimination proceeding. Note, however, in order for the employer to recover attorneys’ fees, the employer must make a separate motion to the court and must establish that the employee’s case was “frivolous”, meaning that it was commenced or continued in “bad faith” without any reasonable basis. Effective date: Already in effect as of October 11, 2019 Liberal Construction NYSHRL is “to be construed liberally for the accomplishment of the remedial purposes thereof, regardless of whether federal civil rights laws, including those laws with provisions worded comparably to the provisions of this article, have been so construed.” Exceptions and exemptions to the law “shall be construed narrowly in order to maximize deterrence of discriminatory conduct.” This language indicates that courts should interpret state harassment and discrimination laws as broadly as possible. The NYSHRL has an express purpose to protect those who have experienced harassment or other forms of discrimination. Effective date: Already in effect as of August 12, 2019 Next Steps Given that 2019 is the second consecutive year in which New York has amended the state’s harassment and discrimination laws, employers can reasonably assume that more changes will come along sooner rather than later. Future legislation will likely build on these amendments as well as GENDA; the act passed earlier this year that addresses discrimination related to gender identity and expression. With that in mind—not to mention the fast-approaching deadlines in 2019—employers should speak with legal counsel and develop proactive strategies as soon as possible. Looking for experienced, flexible guidance in navigating New York’s new laws? At Offit Kurman, we are well-equipped to adapt to the needs of businesses of all sizes. For instance, our firm makes it easy for small employers to pool together and conduct shared annual training on a cost-effective basis. Discover how we can help you and your organization, as well as the members of any association or local community you belong to. Learn more about our New York Labor and Employment Law services.
October 3, 2023
Business
Many US and Foreign Companies in the US Will Need to Disclose Ownership
Originally posted on 02/03/2021, content updated on 10/02/2023 On January 1, 2021, the Corporate Transparency Act of 2019 (the “CTA”) became law. The CTA is part of the Anti-Money Laundering Act (“AMLA”) and is intended to fight money laundering and terrorism through the anonymous use of shell companies. Under the CTA, many US and foreign companies registered in the US will need to disclose their beneficial ownership to the Financial Crimes Enforcement Network of the US Treasury (“FinCEN”). Unlike in some foreign countries, including in Europe, states in the US generally do not require disclosure of entity ownership. In Delaware, for example, only the name of the entity and the registered agent information is included in the certificate of incorporation, and the beneficial owners do not need to be disclosed in the Delaware annual report filings. Who will need to disclose ownership information? Beneficial ownership will need to be disclosed by a "reporting company." The CTA broadly defines “reporting company.” It does not only include "a corporation, limited liability company, or other similar entity" in the US but also similar entities formed abroad and registered to do business in the US. The CTA excludes, among others, taxable entities that (i) employ more than 20 full-time employees in the US; (ii) annually report more than $5 million in gross receipts or sales to the Internal Revenue Service (IRS); and (iii) have an operating presence at a physical office within the US. Public companies and non-profits are also excluded. Many small to mid-size privately held companies will be affected by the disclosure requirements of the CTA. What will need to be disclosed? A reporting company must report the name, date of birth, current address (business or residential) and unique identifying number from an acceptable document (such as a state driver’s license, other U.S. state-issued identification, U.S. or foreign passport) for each “beneficial owner.” Under the CTA, a "beneficial owner" is any natural person who, directly or indirectly, owns at least 25% of the equity interests in a reporting company or exercises "substantial control" over the reporting company. The CTA does not define the term “substantial control.” Certain individuals are expressly excluded from the definition of "beneficial owner," including: individuals acting as agents, nominees, intermediaries, or custodians on behalf of another; individuals who control an entity solely because of their employment; and individuals whose only interest in a reporting company is through a right of inheritance. When will disclosure need to be made? Disclosure will need to be made after final regulations under the CTA will have become effective. It is expected that regulations will be issued before January 1, 2022. Companies which already exist as of the effective date of the CTA’s implementing regulations will be required to report beneficial ownership information within two years; companies created after the effective date of the regulations will be required to report that information upon formation. Reporting companies must update their disclosures within one year of any change in ownership or control. Who will have access to the information? Beneficial ownership information will need to be submitted to FinCEN, which is only permitted to use that information for limited national security and anti-money laundering purposes. The beneficial ownership information submitted to FinCEN will be stored and maintained solely with FinCEN and will not be made publicly available nor will such ownership information be made generally available to the states. FinCEN may use the information to confirm beneficial information provided to financial institutions to facilitate the compliance of such financial institutions with anti-money laundering laws, provided that the consent of the reporting company is obtained. Are there penalties for non-disclosure? Any person who willfully fails to report complete beneficial ownership information to FinCEN or who willfully provides false or fraudulent information in any such report is subject to a civil penalty up to a maximum of $10,000 and possibly imprisonment. Negligent omissions or mistakes in beneficial ownership reports do not trigger penalties. If you have any questions or would like to discuss any of these issues, please contact me at 212-545-1900 or mbloemsma@offitkurman.com.
October 2, 2023
Franchise Law
Correcting an Accidental Franchisor Violation
Originally posted 10/31/2016, no content changes. What's a franchise? Franchise registration and disclosure laws define a "franchise" more broadly than people generally realize. A company may be franchising without knowing it. The "license" agreement may have been drafted, for example, by an attorney who has limited knowledge about franchise law. Hence the popular topic (at least among franchise lawyers) of the "inadvertent" or "accidental" franchisor. A business owner who has run a successful "test" of licensing its business may decide that the next step is to set up a franchise system, not realizing that the test was already a franchise sold in violation of one or more franchise laws. The violation would consist of the licensor's failure to prepare a franchise disclosure document ("FDD") as required by the Federal Trade Commission's trade regulation rule on franchising (the "FTC Rule") and to deliver the FDD to the prospective franchise buyer at least two weeks before the franchise buyer signs an agreement or makes a payment to the franchisor. If a state franchise law applies, the violation may also consist of the licensor's failure to register the offering with the state. Or a business may have granted several "licenses" without knowing about the federal and state requirements. How can a noncompliant franchisor get back on track to roll out a program to sell franchises in multiple states in compliance with the franchise laws? Here is one approach: Form a new company that will be the franchisor entity. Set it up as a commonly-owned affiliate of the company that owns the brand. This provides limited liability and allows the brand owner to avoid the need to obtain and disclose audited financials of its non-franchise business. Only the franchisor entity will disclose its financial statements, beginning with an opening balance sheet. An affiliate is preferable to a subsidiary because Item 21 of the FDD calls for disclosure of the financials of the franchisor and "any parent that commits to perform post-sale obligations for the franchisor…." Prepare a franchise agreement and any other documents that a new franchisee would sign, as well as a detailed FDD. Then offer rescission to the existing licensees while at the same time delivering to them the FDD of the newly-formed franchisor and an offer to replace the license agreement with a franchise agreement with no initial fee. Many licensees would likely sign the new franchise agreement to replace the prior license agreement. If there are one or more holdouts, the brand owner can assign the holdout's license agreement to the brand owner's newly-formed franchisor affiliate. Unless the license agreement provides otherwise, that assignment would not require the licensee's consent. This approach should remedy the problem in the states that do not have franchise sales laws in addition to the FTC Rule or in states that require a simple filing with no review. But the picture is more complicated in a handful of states that require franchise registration after a careful review by a state examiner. Registration States In Item 1 of the FDD, the franchisor must disclose the business experience of "any affiliates that offer franchises" including the length of time each has offered franchises for the type of business that the franchisee will operate. In other words, the franchisor will need to disclose the initial test "license" or the accidental franchises. If one or more of the accidental franchisees is located in the examiner's state, the examiner is certain to raise the issue of a possible violation. The best way to deal with this issue is to self-report. Tell the examiner up front that the company recently learned of this issue and wants to cooperate so that the company can begin to sell franchises in compliance with the state's franchise law. It may be best for franchise counsel to telephone the examiner on a no-name basis before even submitting the filing. Proactively self-reporting the violation and pointing out mitigating factors is far superior to becoming a target of an investigation. Before reporting violation, of course, the company should be sure that no exemptions apply. Mitigating factors may include reliance on the advice of counsel who did not recognize the relationship as a franchise and the fact that no franchisee has complained or lost money as a result of the franchise purchase. Catching the problem early is helpful because franchisees are likely to be optimistic while still in the "honeymoon" phase of the business. A happy franchisee is not likely to rescind the agreement. New York New York has a very specific provision dealing with this situation. Section 691(2) of the New York General Business Law states that a person may not file or maintain a lawsuit against a franchisor for violation of the New York Franchise Sales Act if that person receives a rescission offer from the franchisor and does not accept such offer within 30 days after the franchisee receives it. At least 10 business days before making the rescission offer, the franchisor must submit the offering documents to the Department of Law (the state Attorney General's Office). If the New York Department of Law is satisfied that the violation was inadvertent and caused no damage to franchisees, the New York Department of law might impose a fine and require the franchisor to sign an assurance of discontinuance ("AOD"). Must the franchisor disclose the AOD in Item 3 of the FDD? The short answer is no. In Item 3, a franchisor must disclose, among other things, any pending administrative, criminal or material civil action alleging a franchise law violation against the franchisor or any of its affiliates. The franchisor must also disclose any currently effective injunctive or restrictive order or decree resulting from a pending or concluded action brought by a public agency relating to the franchise. An AOD does not result from a civil action or proceeding. For this reason, it is not appropriate to disclose the AOD in Item 3 of the FDD. An AOD is a creature of New York Executive Law Section 63(15), which provides in part as follows: "In any case where the attorney general has authority to institute a civil action or proceeding in connection with the enforcement of a law of this state, in lieu thereof he may accept an assurance of discontinuance of any act or practice in violation of such law from any person engaged or who has engaged in such act or practice." An AOD entered into pursuant to New York Executive Law Section 63(15) should not be disclosed in Item 3 because the AOD is not an injunction or restrictive order or decree resulting from an action brought by a public agency. The AOD is signed "in lieu" of an action. On the other hand, if the Attorney General's Office actually prosecutes a case against the franchisor for a willful violation that causes harm to a number of franchise buyers, then the franchisor will have to disclose the action and any resulting judgment in Item 3. Tom Pitegoff, Tom.Pitegoff@offitkurman.com
October 2, 2023
Labor and Employment
New York State Permanent Sick Leave
Originally posted on 07/24/2020, content updated on 09/29/2023 New York State enacted a permanent paid sick leave law on April 3, 2020, which took effect 180 days after the enactment, on September 30, 2020 (the “PSLL”). The PSLL adds Sec. 196-b to the N.Y. Labor Law. Under the PSLL, employees began accruing leave as of September 30, 2020, but employees could not begin to use accrued leave until January 1, 2021. Amount of Leave/Paid vs. Unpaid The amount of leave an employer is required to provide and whether it is paid or unpaid leave, varies based on the size of the employer’s workforce in any calendar year and the amount of net income in the previous tax year: Employers with four or fewer employees and net income of $1 million or less in the previous tax year are required to provide 40 hours of unpaid sick leave per calendar year. Employers with four or fewer employees and net income of greater than $1 million in the previous tax year are required to provide 40 hours of paid sick leave per calendar year. Employers with five to 99 employees must provide 40 hours of paid sick leave per calendar year. Employers with 100 or more employees must provide 56 hours of paid sick leave per calendar year. For the purposes of calculating the number of employees, a “calendar year” is defined as the 12-month period from January 1 through December 31. For the purposes of using and accruing leave, a “calendar year” means either January 1 through December 31 or any regular and consecutive 12-month period. Accrual and Frontloading: Leave must accrue at a rate of at least one hour per 30 hours worked; however, an employer may choose to provide employees with the entire amount of leave at the beginning of the year. An employer who chooses to frontload leave may not later reduce the amount of leave if the employee does not work sufficient hours to accrue the amount provided. Use of Sick Leave Reason for Leave: An employee may use sick leave for any one of the following reasons: mental or physical illness, injury or health condition of an employee or the employee’s family member (regardless of whether a diagnosis has been obtained); diagnosis, care or treatment of a mental or physical illness, injury, or health condition of, or the need for medical diagnosis of, or preventative care for, the employee or employee’s family member; or absence when an employee or employee’s family member has been the victim of domestic violence, a family offense, sexual offense, stalking or human trafficking and seeks or obtains services, including from a shelter, attorney or law enforcement, or takes “any other action to ensure the health or safety of the employee or family member or to protect those who associate or work with the employee.” Covered Family Members: A family member is defined as an employee’s child, spouse, domestic partner, parent, sibling, grandchild or grandparent or the child or parent of an employee’s spouse or domestic partner. “Parent” is defined as “a biological, foster, step- or adoptive parent, or a legal guardian of an employee, or a person who stood in loco parentis when the employee was a minor child.” Additionally, “child” is defined as a biological, adopted or foster child, a legal ward or a child of an employee standing in loco parentis. Proof of Qualifying Reason: An employer may not require the disclosure of confidential information as a condition of providing leave, such as information relating to a mental or physical illness, injury or health condition of the employee or the employee’s family member. Minimum Increment: An employer may set a reasonable minimum increment at which leave must be used; however, this increment may not exceed 4 hours. Compensation: PSLL compensation must be the greater of: (1) the employee’s regular rate of pay, or, (2) the applicable minimum wage established by N.Y. Labor Law Sec. 652. Carry Over: Unused sick leave will be carried over. However, employers with fewer than 100 employees may limit an employee’s use of sick leave to 40 hours per year, and employers with 100 or more employees may limit use to 56 hours per year. No Payout at Separation: Employers are not required to pay employees for unused sick leave upon an employee’s voluntary or involuntary separation from employment, including retirement. Interaction with Other Leave: Employer Policy: An employer that already provides a sick leave or paid time off policy that meets or exceeds the leave provided by this law need not provide additional leave as a result of this law. The employer’s policy must also satisfy the accrual, carryover and use requirements of the law. Local Paid Sick Leave Laws: This law does not prevent a city or municipality with a population of one million or more from enforcing local laws or ordinances which meet or exceed the standards or requirements of this law. The law also provides that any paid leave benefits provided by a municipal corporation existing as of the effective date of the law will remain in effect. New York City and Westchester County have existing sick leave laws. Collective Bargaining Agreements: Employers who enter into collective bargaining agreements on or after the effective date of this law must provide benefits comparable to those provided under the law. These agreements must specifically acknowledge the provisions of the law. Job Protections Retaliation: An employer may not retaliate or discriminate against or otherwise penalize any employee for requesting or using sick leave. Job Protections: An employee must be restored to his or her position with the same pay and terms and conditions of employment upon return from leave. Documentation: An employer is required to track the amount of sick leave provided to each employee and maintain this information in its payroll records for six years. Upon request by an employee, the employer must provide within three business days a summary of the amount of sick leave accrued and used by the requesting employee.
September 29, 2023
Bankruptcy
Demystifying the Bankruptcy Process – Part Four
Originally posted on 09/29/2020, content updated on 09/29/2023 As previously highlighted, the COVID-19 pandemic created a lot of turmoil in every industry and every company and hundreds of in the energy, transportation, entertainment, health & personal care, retail, travel, lodging, and leisure industries have sought bankruptcy protection. In 2020, the Art Dealers Association of America (ADAA) released a report on how art galleries across the U.S. have been affected by the pandemic. The report demonstrated that galleries had faced devastating revenue losses, reduction in business activity, and closures of their physical spaces, not only financially impacting their employees and vendors but artists and creative professionals around the world. Therefore, it is important to be familiar with your rights as an artist. WHAT IF YOU ARE AN ARTIST DEALING WITH A GALLERY’S BANKRUPTCY State law dictates the scope and nature of the legal rights and interest that a debtor-gallery has in artwork in its possession, even when the gallery is a bankruptcy proceeding in federal court. Applicable state law in New York expressly provides that artwork delivered by an artist to a gallery for sale is trust property and that any proceeds from the sale of such work are trust funds in the hands of the gallery for the benefit of the artist. Such artwork and sale proceeds may not be subject to any claims, liens or security interest. When a bankruptcy proceeding is commenced, property in the possession of the debtor-gallery becomes property of the estate and subject to distribution to all or certain creditors to the extent of the debtor-gallery’s property interest. Such interest is determined by state law. Since under Section 12.01(1)(a)(ii) of the NYACAL, artwork is trust property in the hands of the debtor-gallery for the benefit of the artist, artwork protected by the statute never becomes part of the debtor-gallery estate and should be beyond the reach of the gallery’s creditors. By its terms, the New York statute applies “[n]otwithstanding any custom, practice or usage of the trade, any provision of the uniform commercial code or any other law, statute, requirement or rule, or any agreement, note, memorandum or writing to the contrary.” Section 12.01 unequivocally provides that no liens or security interest may attach to artwork delivered by an artist to a gallery for sale. Moreover, the statute also expressly provides that an artist cannot waive this provision of the statute, making it impossible for a lien or security interest to attach. To be protected by the statute, the artwork should fall under the definitions of the statute. Section 11.01 of the NYACAL sets forth the applicable definitions: An “artist” is defined as “the creator of a work of fine art or, in the case of multiples, the person who conceived or created the image which is contained in or which constitutes the master from which the individual print was made.” “Fine art” is defined as “a painting, sculpture, drawing, or work of graphic art, and print, but not multiples.” Section 12.01(1)(b) expressly prohibits the waiver of the “no lien” provision contained in Section 12.01(1)(a)(v), and no artist whose works are subject to Section 12.01 is able to consent to the granting of a lien or security interest, even if they were inclined to do so. Section 12.01(1)(b) contains one exception to its prohibition on waivers. Subject to certain conditions, Section 12.01(1)(a)(iii), which provides that any proceeds from the sale of work that is trust property are trust funds in the hands of the gallery for the benefit of the artist, may be waived if “such waiver is clear, conspicuous, in writing and subscribed by the consignor. Therefore, when dealing with a gallery, an artist has to carefully review any language proposed by the gallery that may suggest relinquishing statutory rights. In case you missed it, read part one, two, three, and five here. If you have a question on this topic, please contact Albena Petrakov at apetrakov@offitkurman.com or 212.380.4106
September 29, 2023
M&A Nuggets
M&A Nugget: Shhhh…Keep It Secret
Sellers usually do not want the world to know the terms under which their business is sold, especially the purchase price. Purchase agreements therefore typically contain a confidentiality provision requiring both sides to keep the transaction and its terms confidential. There are, however, exceptions to this “keep it secret” obligation that should be included in every agreement. First, the parties should be able to relay the transaction and its terms to their accountants, attorneys and advisors. Second, either side should be able to disclose the transaction in any dispute between the parties. Last, buyers often want to publicize an acquisition through a public notice, commonly referred to as a Tombstone. In non-public transactions, the Tombstone usually contains the names of the purchaser and seller, but not the purchase price. So, keep the transaction secret for the most part, but allow for the above reasonable instances of disclosure.
September 28, 2023
Immigration Law
The J1 Foreign Residence Requirement
Medical Training and 212(e) Every year, many foreign medical graduates come to the United States on a J1 visa to complete their medical training as residents or fellows. Foreign medical graduates must pass the U.S. Medical Licensing Examination (USMLE), complete a medical residency in the U.S. and become licensed in a particular state to qualify to practice medicine. J1 visas for medical training are issued by the Department of State with the intent that participants return to their home countries after their training is complete. The J1 visa is, at its core, an exchange visa. J1 medical graduates benefit their home countries with the medical knowledge with the training acquired in the U.S. Accordingly, Physicians with J visas must return to their country for two years before being allowed to obtain either H-1B status or permanent residence in the United States. This two-year home residency requirement is created by section 212(e) of the INA and will be notated as a “212(e) subject” on visas and other government documents. J1 physicians who return home for two years and intend to return to the United States must be careful to fully document their time outside of the country. Waiver of 212(e) Obtaining a waiver of the 212(e)-residency requirement is difficult, but there are various paths for obtaining such a waiver. 212(e) Waivers are processed initially by an Interested Government Agency, and then the Department of State who recommends the case to the U.S. Citizenship and Immigration Services. Hardship or Persecution If a 212(e) subject J1 visa holder can be eligible for a waiver if they can demonstrate that extreme hardship would be inflicted on members of their family who are permanent residents or U.S. citizens if they must return to their home country. Similarly, a 212(e) subject J1 visa holder can be eligible for a waiver if they can demonstrate they will be persecuted if required to return to their home country. Hardship and persecution waivers are rare and require significant supporting evidence to be successful. Interested Government Agency Waivers Independent government agencies may also submit a request to the Department of State to recommend a J1 Waiver. Such waiver requests are discretionary and are subject to internal agency policy. Interested government agencies (IGAs) submit their request to the Department of State who in turn informs the U.S. Citizenship and Immigration Services who ultimately issues the waiver. Agencies that have sponsored J1 waivers include the Department of Health and Human Services, the Department of Defense, and, in limited circumstances, the Department of Veterans Affairs and the Department of Agriculture. DHHS Exchange Visitor Program The HHS has two tracks for J1 waiver recommendations. HHS Research The first track is for individuals who are performing health research in an area of significant interest to the HHS. HHS relies on subject matter experts for its waiver review process and will require detailed information regarding the applicant, the research they are conducting and the institution supporting the waiver. HHS Clinical Care The second track is for clinical care physicians who plan to practice primary care (family medicine, general internal medicine, general pediatrics, obstetrics & gynecology) or general psychiatry at a qualifying health center. The HHS’s most recent guidelines allow physicians to apply under the program who plan to practice at any health facility that has or is in a location that has a Health Professional Shortage Area score of 7. HHS are subject matter experts, and waivers submitted to the HHS require specific evidence regarding the health facility, the patients and the physician. State Waivers and the Conrad 30 Waiver Program The Conrad 30 waiver program aims to address the shortage of qualified doctors in medically underserved areas and allows J-1 foreign medical graduates to apply for a waiver of 212(e), provided they agree to serve for three years in an area with a medically underserved population in H1B status. Each state and the District of Columbia has 30 J1 waiver spots per fiscal year, and they have unique requirements for J1 waiver submission. The Conrad 30 program has certain overall requirements that all potential applicants must meet: The foreign medical graduate must have been admitted to the United States with a J1 visa to receive graduate medical training; The foreign medical graduate must enter into a bona fide, full-time employment contract to practice medicine in H-1B nonimmigrant status for at least three years at a healthcare facility located in an area designated by the U.S. Department of Health and Human Services (HHS) as a Health Professional Shortage Area (HPSA), Medically Underserved Area (MUA), or Medically Underserved Population (MUP) or serving patients who reside in a HPSA, MUA, or MUP. The foreign medical graduate must obtain a “no objection” statement in writing from their home country if they are contractually obligated to return to their home country upon completion of the exchange program. The foreign medical graduate must agree to begin employment at the health care facility specified in the waiver application within 90 days of receipt of the waiver, not the date their J-1 visa expires. Conrad 30 Waiver Process Foreign medical graduates seeking a Conrad 30 waver have three steps to complete: first, they must obtain the IGA sponsorship of a State Health Department, then they must submit a J1 Waiver Application with the Department of State, and finally, they must obtain a cap-exempt H1B visa to begin working in their medically underserved area. Once their three years in H1B status under the conditions of the waiver are complete, the physician would then be eligible to apply for legal permanent residence or a different status. If a physician fails to meet the terms of their three-year waiver, they will be again subject to 212(e). National Interest Waivers for Physicians National Interest Waivers are available for physicians who choose to continue practicing medicine in their J1 waiver area. National Interest Waivers (NIW) are a Petition for Immigrant Worker and can allow for a direct path to a green card. Physicians must practice clinical medicine full-time in a designated shortage area for a five-year period to qualify for the NIW petition. The NIW petition will allow the Physician to adjust their status to legal permanent resident or apply for an immigrant visa.
September 27, 2023
Franchise Law
Notice of Rights Enhances Trade Secret Protection
In order to access the full range of remedies the Defending Trade Secrets Act of 2016 (DTSA) offers, a trade secret owner must notify employees and contractors of certain rights they have under the DTSA. The DTSA allows a trade secret owner to seek damages and injunctive relief in federal court against someone who misappropriates the company’s trade secrets. The trade secret must be related to a product or service used or intended for use in interstate or foreign commerce. The action must be brought within three years after the misappropriation was discovered or reasonably should have been discovered. And the misappropriation must have occurred after the date of the DTSA enactment, May 11, 2016. If trade secrets are misappropriated willfully and maliciously, the court may award (i) exemplary damages equal to twice the amount of the actual loss and (ii) attorneys’ fees. But a trade secret owner can forfeit the right to recover exemplary damages and attorneys’ fees by neglecting to follow one simple requirement. The trade secret owner must notify employees and contractors that they are protected against liability for disclosing trade secrets in certain circumstances. This notice applies to agreements entered into or updated after the date the DTSA went into effect. In other words, franchisors and other trade secret owners should update their documents now. The notice might look something like this: Nothing in this Agreement is intended to prohibit you from exercising your rights under the Defending Trade Secrets Act of 2016. You have the right to disclose our trade secrets in each of the following circumstances without incurring criminal or civil liability: You may disclose our trade secrets (i) in confidence to a federal, state or local government entity, or to an attorney, solely for the purpose of reporting a suspected violation of law or in an investigation of a suspected violation of law, or (ii) in a legal proceeding under seal. You may disclose our trade secrets in a complaint or other document filed in a lawsuit or other proceeding as long as the filing is made under seal. This includes a lawsuit you may file for retaliation by us for your reporting a suspected violation of law to a government entity. You may not otherwise disclose any trade secret or confidential information except pursuant to a court order. Who must receive this notice? The trade secret owner must give the notice to its employees. But the term “employee” has a broad meaning in the DTSA. In addition to actual employees, the term “employee” includes “any individual performing work as a contractor or consultant for an employer”. Franchisees are independent contractors While it is not clear what the statute means by “a contractor or consultant for an employer”, it is plausible that a court might view a franchisee as one who requires notice under this provision. For this reason, franchisors should provide notice both to their employees and franchisees, and to other contractors who may have access to trade secrets. Where should the notice appear? It should appear in any contract with an employee or contractor “that governs the use of a trade secret or other confidential information.” This might include the franchise agreement and any confidentiality agreement or other agreement with a confidentiality provision. Alternatively, it can appear in the trade secret owner’s policy document provided to employees that sets forth the employer’s reporting policy for a suspected violation of law as long as the employer provides a cross reference to that policy document. In other words, existing agreements need not be amended as long as the policy statements referred to in those agreements are updated to include this notice. This means that trade secret owners, including franchisors, should update their employee manuals, and franchisors should also update their franchise operations manuals. New franchise agreements and confidentiality agreements should also contain the required notice, or at least a cross reference to the document that does contain the notice. The enactment of the DTSA is a positive development. It will likely lead to a more uniform law of trade secrets throughout the U.S. In addition, the ease of bringing an action in federal court or removing an action from state court to federal court can meaningfully affect the outcome of the case to the benefit of the franchisor or other trade secret owner. But to get the maximum benefit from the DTSA, trade secret owners should be sure to give the required notice to their employees, franchisees and other contractors.
September 27, 2023
One Minute of Overtime
Time Tracking
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. Since proper wage payment is based on hours worked, it is critical for employers to ensure accurate time tracking. While handwritten timesheets are acceptable, it is preferable to use an electronic system or time cards. Whatever system is used, employers should make sure they understand the system's rounding convention.
September 27, 2023
Intellectual Property
From Palette to Protection: When Does Color Function as a Trademark?
Back when my daughter was in third grade, parents were invited to her classroom to talk about their jobs. I talked about trademarks and brands, discussing products they would appreciate, like HOT WHEELS miniature cars and AMERICAN GIRL dolls. At one point, I told the students that a color can be a trademark and that Mattel claims the right to the color pink as a trademark associated with their BARBIE products. A little girl named Emma spoke up and said, “That doesn’t seem fair that just one company can use a color.” What Emma didn’t know was that she isolated the same issue that the US Supreme Court had considered back in the 1990s when the Court held, in a case involving green-gold dry cleaning machine pads, that a company could claim color as a trademark, but only after years of exclusive use and evidence that the public associates the color with a single source. (By the way, Emma is now in law school.) So what does it take to be able to claim that a color is exclusively for use by one source? First, to be clear, even when a company is able to claim color as a trademark, its rights will only be limited to the goods or services for which the color is used or closely related goods/services. So while Tiffany could stop another jewelry company from using its robin’s-egg blue color, Tiffany would not be able to prevent, say, an HVAC installation company from using this shade. To be eligible for trademark protection, a color must be: Non-functional: The color should not serve a functional purpose related to the product or service. In other words, it should be purely aesthetic. Recognized by the public: The color must have gained recognition and distinctiveness in the minds of consumers. Examples in Advertising: UPS’s Iconic Brown One of the most famous examples of a company successfully using color as a trademark is United Parcel Service (UPS). Instant Recognition: UPS’s brown delivery trucks are instantly recognizable, and the color has become synonymous with the brand’s reliable package delivery services. Consistent Branding: UPS consistently uses brown in its advertising, packaging, and uniforms. This uniformity reinforces the brand’s image and helps it stand out in a crowded market. Promotional Campaigns: “What Can Brown Do For You?” UPS has run advertising campaigns centered around its brown color, emphasizing the reliability and trustworthiness associated with the color brown. Challenges and Legal Considerations While companies like UPS have successfully used color as a trademark, it’s important to note that securing trademark protection for a color can be challenging. Courts often require extensive evidence of distinctiveness and consumer recognition. Additionally, competitors may challenge the validity of color trademarks, arguing that the color is functional or not sufficiently distinctive. Conclusion Color can be a powerful tool for branding and marketing, and some companies, like UPS, have effectively incorporated it into their trademark strategy. However, the legal requirements for securing and defending a color trademark are rigorous. Businesses considering color as a trademark should seek legal counsel to navigate the complexities of trademark law and protect their unique brand identity. If you would like to discuss trademark protection for colors, please reach out to me.
September 26, 2023
M&A Nuggets
M&A Nugget: Representations And Warranties Insurance
If you read a business purchase agreement carefully, you cannot help but notice that more pages are devoted to the seller’s representations and warranties than any other topic. A substantial amount of time and costs are spent negotiating the representations and warranties. Sellers are left at risk for an indemnity claim, especially in deals in which part of the purchase price is held back, which is common. Buyers are somewhat at risk, as the ability to collect an indemnity claim against a seller is not guaranteed. To address all of this, a unique kind of insurance was developed several years ago and is in use with increased frequency. The insurance is known simply as Representations and Warranties Insurance (R & W Insurance), and protects the buyer or the seller from inaccuracies in or breaches of the seller’s representations and warranties. The use of this insurance can allow the seller to avoid a purchase price holdback and the buyer to avoid having to collect an indemnity claim from the seller. There are many details that must be addressed with R & W Insurance, including the coverage limit, the deductible amount, the premium and the fact that certain representations and warranties will not be covered. R & W Insurance is typically used in transactions in the high-mid market to large market range. So, if your transaction falls within that range, consider exploring R & W Insurance.
September 25, 2023
M&A Nuggets
M&A Nugget: Health Care, Beware
The acquisition of a health care entity implicates two major federal statutes aimed at the health care industry. The Anti-Kickback Statute prohibits offering, paying or soliciting anything of value in return for referrals of heath care business covered by federal programs. A second law, known as Stark, prohibits physicians from referring Medicare patients for designated health services to an entity in which the physician has a financial relationship. Violations of these laws can result in severe and substantial penalties, including suspension from participation in federal health care programs and fines. Although these laws are usually discussed in the context of a health care provider’s ongoing operations, the laws can also apply to health care consulting and service firms and can be implicated in the acquisition of health care related entities. A purchaser must conduct appropriate due diligence to ascertain whether the seller has any exposure under these laws. The business terms of an acquisition can actually bring these laws into play. These health care laws are unique and a violation of them can have serious consequences. A purchaser of a health care entity should, therefore, secure advice from an advisor well-heeled in the health care law environment.
September 22, 2023
Business
Healthy Businesses Lead to Successful Sales: Business Ownership Maintenance is Key
What does getting your car its annual safety inspection and selling a business have in common? More than seems obvious. Many states require annual safety inspections for vehicles. Maryland is one of the states that does NOT have this annual safety inspection. In Maryland, your vehicle does not need to be safety inspected until you seek to transfer the title. Thus, in practice, there are many cars in Maryland on the road for years that have not been safety inspected. Hence, numerous vehicles are driving around that may have “issues” that the owners are not aware of. My personal experience has shown that when you transfer a vehicle in Maryland and have the car inspected, you are suddenly faced with numerous vehicle “defects” that must be fixed to pass inspection and transfer title. Fast forward to selling a business. In my experience, I have not come across a single business that was without “defects” in the sale process. Like the running car, these businesses are operating and making money. However, when the business goes to sell, the buyer and its advisors will conduct a thorough inspection. Too often, many defects rise to the surface, requiring remedy before the sale can proceed. In this series of articles, I will be discussing the best ways to start, grow, and maintain a healthy business by reflecting on top issues when selling a business and what can be done to set up a business for a successful sale. This series will include annual “inspections” by the owner in the areas of legal, operation and financial to better prepare the business for sale. Frequently defect areas often include tax planning, employment and key employees, intellectual property, ownership issues/operating agreements, cap tables, and corporate governance issues.
September 21, 2023
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