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
Family Law
Custody and Relocation in Pennsylvania
Originally posted on 3/14/2018, no content changes Relocation with a child in Pennsylvania is a complicated issue involving whether or not the parent who is relocating has primary physical custody and whether the location of his/her new residence will impact the visitation time of the parent who has partial physical custody, or any other party having visitation with the child. The process does not revolve around which parent has legal custody but how the relocation will affect the visitation rights of the other parent (or sometimes other parties, i.e., if a grandparent had partial physical custody/visitation rights). If the parent with primary physical custody wishes to relocate with the child, he or she must provide the other parent a formal notice of relocation, which must outline detailed information regarding the relocation. Following receipt of the Notice of Relocation, the non-relocating parent has thirty (30) days to file an objection to the Notice of Relocation with the Court. If such an objection is filed, the Court will schedule a hearing to determine the merits of relocation and whether same is in the best interest of the child(ren). If no objection is filed, the relocating parent must file a request to have the Court confirm his/her relocation with the child(ren). At that hearing, the Court will likewise make a determination as to whether the relocation is in the best interest of the child(ren), however, if no objection is filed, there is a presumption that the parties’ agree to the relocation and that same is in the child(ren)’s best interest, and thus the relocation is normally granted. If you are thinking of relocating and that relocation may negatively impact the other parent’s visitation schedule, it is imperative that you seek legal advice and ensure the proper notice is given and confirmation is granted by the Court before the move. As this can be a complicated issue and every case is fact-sensitive and unique, be sure to consult with a family law attorney, and sufficient time to obtain the necessary confirmation is allotted to ensure your move goes smoothly and visitation is not disrupted. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
September 21, 2023
Immigration Law
Government Shutdown and Immigration Impacts 2023
Once again, the federal budget impasse in Congress is getting closer to a Government shutdown if an agreement is not met before September 30, 2023. If no legislation is passed by that date, then another Government shutdown is inevitable. Last-minute deals and short-term funding agreements have been used in recent years to keep the government afloat, but the threat of a full shutdown given the time remaining should not be discounted. What impacts would a government shutdown have on immigration services? Generally speaking, the short-term impact is limited in scope as the United States Citizenship and Immigration Services is fee-based and is able to remain functioning during a shutdown. Likewise, the Department of State is an essential government function and would remain largely unaffected as would Customs and Border Patrol. However, with these large agency’s shutdowns can affect them in various ways. Programs that are not considered essential could be impacted such as trusted traveler programs, specialized processing for Canadian nationals as well as supporting Consular programs. Long-term shutdowns can lead to larger delays and processing bottlenecks as ancillary federal services close. The biggest immediate impact of a government shutdown would be the Department of Labor (DOL) which would cease operations. The closure of the DOL has significant impacts as the processing of employment-based labor certifications under the PERM (now FLAG) system would cease. In addition, Labor Certifications to support H1B petitions would be suspended as well. The immigration court system would also be affected and going by prior shutdowns we could see the courts close except for detained matters. The sheer number of immigration court cases and the stacked docket could lead to further substantial delays. Another large immigration related program that would be affected by the shutdown would be the E-Verify program. E-verify that allows for online registration of the I-9 process would shut down and functions would cease. In the case that E-verify is not working it does not stop employer’s obligation to comply with the I-9 rules. Employers and individuals should keep themselves aware of developments as we edge closer to September 30, 2023. The key considerations for immigration impacts are: H1B transfers and new hires could be affected in October. If possible, employers should aim to file Labor Condition Applications with enough time in September. DOL processing of PERM applications, Prevailing wages, etc. will close, employers and employees should monitor potential impacts for later green card processing and Immigrant Petition filings. Border processing of TN applications could be affected. Delays are likely to increase as staffing and additional DHS support of Agencies will dry up. I-9 obligations remain, even if E-Verify is not working.
September 20, 2023
Landlord Representation
Housing Voucher Programs and What You Need to Know About Them
In previous newsletters, I have discussed inflation and the rising costs of housing statewide and the effects it has had on individuals, as well as the call for legislation concerning rent control and other renter protections. Keeping on trend, in this blog post, I will be discussing what has been termed “income source discrimination.” Income source discrimination is loosely defined as discriminating against an individual or group of people based on their source of income and is most commonly seen in the housing market and affects housing choice voucher recipients. Housing choice voucher programs are federally regulated and designed to provide housing assistance to low-income families, the elderly and disabled so they may obtain affordable and safe housing in the private market. Whether private landlords have to accept or participate in the programs varies from state to state. Most recently, in New York, a law providing that income source discrimination was found to be unconstitutional. In relevant part, the law stated: “It shall be an unlawful discriminatory practice for the owner, lessee, sub-lessee, assignee, or managing agent of, or other person having the right to sell or lease a housing accommodation, constructed or to be constructed, or any agent or employee thereof: (1) To refuse to sell, rent, lease or otherwise to deny or withhold from any person or group of persons such a housing accommodation because of race, creed color…lawful source of income…or to represent that any housing accommodation or land is not available for inspection, sale, rental or lease when in fact it is so available.” In North Carolina, landlords are not required to accept Section 8 vouchers and may not find the process difficult and cumbersome. Some believe that it is simple, just not worth the hassle and are unwilling to comply with the requirements laid out by HUD (U.S. Housing and Urban Development) for those participating in the program. In 2022, the Charlotte City Council voted (9-2) to enact a policy that bans income source discrimination, making it the first city in North Carolina to do so. The policy ban imposes fines on those landlords who do not comply and only applies to complexes that receive city funding or subsidies. So, what do I do? As a private landlord in North Carolina, as previously stated, you are not required to accept Section 8 vouchers. However, please familiarize yourself with local city ordinances and policies, as they may provide something different depending on whether you receive funding from the city. As housing prices continue to rise, I believe that we will see more of a push for statewide legislation to be enacted to protect renters and ensure affordable housing is available for all citizens of this state. Is a private landlord’s refusal to accept a Section 8 voucher a violation of the Fair Housing Act? Could the argument be made that those who receive Section 8 vouchers are a part of a protected class and, in turn, should be afforded protections under the Fair Housing Act? Or does requiring private landlord to accept Section 8 vouchers violate their constitutional rights?
September 20, 2023
M&A Nuggets
M&A Nugget: Non-Competes- “The Reverse”
Buyers of businesses typically require the target and its owners to sign non-compete agreements which restrict the seller and its owners from competing after the closing. Those agreements obviously benefit the buyer. Non-compete provisions must, however, also be examined from a different perspective. As part of due diligence, the buyer examines the seller’s contracts to determine what contracts the buyer will assume, or take over. The contracts usually include leases, supply agreements and distribution agreements. Those contracts may contain non-compete restrictions or exclusivity provisions which bind the seller and benefit the other party to the contract. If the buyer assumes the contracts, the buyer takes on and is also bound by the non-compete and exclusivity provisions. It is therefore important for the buyer to carefully review contracts for the “non-compete reverse”.
September 20, 2023
Franchise Law
Suspending Franchise Sales
In several states that require franchise registration, franchisors should suspend franchise sales while an amendment or renewal application is pending with the state. Franchisors commonly suspend franchise sales pending registration in most states that require franchise registration. But California and New York each offers a unique and very different approach than a blackout or suspension of sales. California takes an approach that is eminently practical. In California, a franchisor may deliver to a prospect the franchise disclosure document (“FDD”) as filed with state for renewal or amendment together with a written statement that the filing has been made but it has not been reviewed by the examiner and is not effective, and that the franchisor will deliver to the prospect an effective FDD showing any further revisions at least 14 days before any agreement is signed or any consideration is paid. (Cal. Corp. Code §31107.) This approach seems to be one that would not be objectionable in any registration state even if it is not part of the laws of the other state. How could anyone object to a disclosure of filed materials while the actual sale is being suspended until the registration is effective and the franchisor makes a new disclosure after the amendment or renewal is effective and waits the required 14 days? New York also does not require franchisors to completely stop all sales while an amendment to the franchise registration is pending. But New York’s approach is impractical, leading franchisors generally to suspend sales during the time that an amendment is pending. In New York, after a material event occurs or an amendment is submitted to the Attorney General’s Office and is awaiting review and registration, a franchisor may deliver its registered FDD (not the one that is pending) to a prospective franchisee and notify the prospect in writing that an amendment application is (or is about to be) pending and that the franchisor will deliver to the prospect a copy of the amended FDD when it has been accepted for registration. The franchisor can close the sale while the amendment is pending, but the franchisor must hold any funds paid in trust in a separate bank account until ten business days following the date the prospect receives the registered amended FDD. The new franchisee has the right to rescind the sale at any time up to the end of that ten business day period. If that happens, the franchisor must promptly refund the money held in trust. (NYCRR, Title 13, Chapter VII, Section 200.3(i)(3).) Few if any franchisors will want to close the sale while the amendment is pending and thereby run the risk of rescission. Also, because the prescribed procedure calls for the use of the registered FDD and not the revised version that is pending approval, the franchisor will not be able to use the latest version of a revised franchise agreement or to disclose new material information until after the franchise sale has taken place. Incidentally, New York makes no distinction between an amendment and an annual update to a franchise registration. The annual update is also an “amendment”. Also unlike other states, New York views its franchise requirements expansively, so that franchisors based in New York must comply with the New York franchise laws even when they sell franchises outside the state. A New York based franchisor should suspend franchise sales everywhere, even in nonregistration states, whenever an amendment to its franchise registration is pending in New York. On the other hand, if the franchisor is based outside of New York, the suspension required in New York only applies to sales to prospective franchisees in New York. Franchisors based in states other than New York and selling to prospective franchisees in nonregistration states may use a revised FDD as soon as it is completed. But when selling to prospective franchisees in most registration states, the franchisor should stop selling franchises as soon as a renewal or amendment is filed. Franchise sales can resume after the renewal or amendment is effective in those states. But when an event occurs that might affect a prospective buyer’s decision to purchase the franchise, it may be advisable to suspend sales even before the FDD has been revised and submitted to any states. Upon the occurrence of such a material event, most registration states require a prompt amendment filing and a suspension of sales until the amended FDD is registered. In states that do not regulate franchise sales, it is a good idea to suspend sales between the time that a material event occurs and the time that the revised FDD is completed. In states that do not require franchise registration, franchise sales are governed only by the Federal Trade Commission’s trade regulation rule on franchising (the “FTC Rule”). The FTC Rule requires the franchisor to prepare an updated FDD within 120 days after the end of the franchisor’s fiscal year. The FTC Rule also requires quarterly updates of the FDD whenever there is a material change to the disclosures in the FDD. Even though the FTC Rule does not require a franchisor to suspend sales upon the occurrence of a material event, it may nevertheless be a good idea to do so. The sale of a franchise when the franchisor knows of a material event but has not disclosed it can give rise to a claim of misrepresentation or fraud under state laws. Franchisor management should be sensitive to the need to amend the FDD. Someone in the organization should be familiar with the contents of the FDD and also be tuned into the most sensitive developments within the company. If a merger or buyout of the company is planned, or if a bankruptcy event or dispute or other threat begins to materialize and is not yet public, the franchisor may not be ready to amend the FDD. But at some point, it may be advisable to suspend franchise sales until the announcement is made and the FDD is amended.
September 19, 2023
Family Law
When an Ordinary Family Lawyer Isn’t Enough
There’s no such thing as an “ordinary” divorce. That being said, it’s fair to call some divorces extraordinary—for the extraordinary legal guidance they require. Imagine that you and your spouse have been together for 25 years. Together during that time, you’ve built a business, amassed a multimillion-dollar fortune, and invested in over a dozen ventures. That’s not all—you and your spouse have three homes, seven cars, a boat, pets, an extensive art collection, several pieces of one-of-a-kind furniture…The list goes on. Now, after one too many disagreements, you’ve both decided it’s best to move on and go your separate ways. Where will all those assets go? Who owns the business? Who controls the investments? Who gets the homes, the cars, the boat, the art, the pets? To determine the answers, you’ll need an uncommonly skilled and experienced legal partner. Many family lawyers lack the knowledge necessary to handle property negotiations and settlements of the size we’re discussing. Keep in mind that asset division is just one piece of the puzzle. In a situation this complex, there may be myriad tax, insurance, and estate matters to consider. Add children into the mix, and you could be dealing with custody arrangements, family business succession plans, wills, trusts, and a whole lot more. At Offit Kurman, we’re able to effectively assist clients with issues like these due to our firm’s unique operational structure and our highly distinguished team. Offit Kurman’s Family Law Practice Group includes multiple American Academy of Matrimonial Lawyers (AAML), International Academy of Matrimonial Lawyers (IAML) Fellows, Super Lawyers honorees, and attorneys named to lists of The Best Lawyers in America. Additionally, we regularly collaborate with our colleagues active in other Offit Kurman Practice Groups, such as Business Law, Education Law, and Estates and Trusts. Learn why Offit Kurman’s Family Law services are anything but ordinary.
September 18, 2023
Family Law
Have You Created Your Post-Divorce Budget?
Money is one of the most common reasons for divorce. It’s also frequently one of the greatest concerns after the divorce has been finalized. Depending on your situation, you may end your marriage with more or less in the bank than you had during the marriage. Perhaps you’ll be the one receiving alimony and/or child support, or the person on the other end writing checks. Maybe you secured more marital property than your ex-spouse—or were forced to give up significant assets such as a house or vehicle. Regardless of the details of your agreement, you’re almost certainly not better off financially now than you were before. Hardly anyone walks away from divorce a “winner.” To ensure your financial stability, you’ll need to carefully create a post-divorce budget and stick to it. This can be challenging for anyone, but especially people whose exes managed household expenses. Here are a few tips for getting started: Calculate your monthly income and expenses. Determine how much money comes in each month. Then, figure out how much you spend on recurring expenses such as housing (e.g. rent or mortgage payments), bills (electricity, phone, water, etc.), groceries, car payments, gas, and so on. Look for ways to save. If your expenses are higher than your income, you need to a) start saving and b) eliminate or reduce as many costs as possible. Transfer a percentage of your income into your savings account each month. Cut down on unnecessary shopping. Cancel subscriptions. Take fewer trips to the supermarket. Wait before making big purchases. There are hundreds of options when it comes to saving money, so pick the strategies that make the most sense to you and your family. Prioritize paying off debt. If you have credit card debt, outstanding student loans, or another form of debt, try to pay back what you owe sooner rather than later. Financial liabilities only compound with time. Track your progress. Once you’ve created a budget, you’ll need to follow it—every day, week, and month. Keep an eye on your income and expenses, and regularly review your plan. If you’re having trouble sticking with it, you may need to revise your budget or change your spending habits accordingly. Finally, don’t hesitate to ask for help. An experienced professional can assist you in developing your budget and keeping your expenses on track. An attorney like the ones at Offit Kurman can provide help or connect you with a financial advisor.
September 16, 2023
Family Law
In A Newly Released Documentary Pope Francis Endorses Same-Sex Unions
Originally posted on 11/03/2020, content updated on 09/15/2023 In the 2018 full-length documentary about the life of Pope Francis entitled Francesco, Pope Francis, for the first time, openly shares his belief that the LGBT community should not only be freely welcomed into the Church, but that the Church needs to embrace, accept and recognize civil unions for same-sex couples. The Pope is clear and unambiguous in his discourse: Homosexuals have a right to be a part of the family… They’re children of God and have a right to a family. Nobody should be thrown out, or be made miserable because of it. This was not the first time Pope Francis has addressed the issue of the gay community and its relationship with the Catholic Church. Francis is believed to be the first pope to use the word “gay” publicly. Soon after becoming Pontiff in 2013, he made headlines when questioned about reports of gay clergy in the Church. Francis answered: “If someone is gay and he searches for the Lord and has good will, who am I to judge?” Whether the Church’s hierarchical authorities will change the teachings of the Church to reflect the Pope’s views is yet to be seen. However, Pope Francis’s forthright support for the religious recognition of formal unions for same-sex couples may be the beginning of a cultural shift in the Church’s views regarding the gay community.
September 15, 2023
Family Law
Whose Case Is It Anyway? – The Risk Of Hiring An Overly Aggressive Divorce Attorney
“Go for the jugular.” “Show no mercy!” “Revenge is a dish best served cold.” Face it, divorce often doesn’t bring out the best in people…and this need for vengeance can cloud a client’s point of view when it comes time to hire an attorney. No client wants a wallflower representing them and there is nothing wrong with an aggressive attorney to work on your behalf. But if you hire a rabid out of control pit bill as your lawyer, someone who tells you they’re out for blood at any cost from the get-go, well that could come back to bite you on the you-know-where. So is there a middle ground where your attorney is “in it to win it” but not to the point where events could spiral out of control to your detriment? Yes, and the first big step is to not make an emotional decision on representation. Often clients come into an initial meeting so riled up, they let their anger get the best of them and some attorneys will seize on this to snag a client, feeding into what a client wants to hear. Instead, try to be rational. Understand that the merits of your case are based on facts and not emotions when you go in front of a judge or mediator. Make sure your attorney wants to take a deep dive into the facts of your case and that’s their sole focus in representing you. Have them come up with an aggressive way to get you a fair but also realistic settlement based on the facts of your case, not what you “feel” you’re entitled to. Also don’t be afraid to discuss your budget and the firm’s costs upfront, so that their strategy works within the confines of what you can afford to pay. And never buy these four words: “don’t worry about it.” Also be wary of an overly aggressive attorney who boasts about wasting the court’s time and the other side’s money in order to get you the biggest and best settlement possible. If they say they’ll “bully” your spouse’s lawyer into submission, think carefully about that as well. Your spouse most likely will have a lawyer who won’t back down to intimidation and this face-off of egos could lead to lengthy delays in the process, costing you valuable time and a considerable amount of money. Once the process begins, stay in communication with your attorney and make sure that you never feel marginalized. You do need to let your attorney do their job, however, that doesn’t mean it’s okay to feel like you’re being left in the dark or that they’re involved in tactics you don’t approve of. The last thing you want is to be a party to an attorney who gets held in contempt of court because you had no idea of what they were doing “on your behalf.” And if you ever feel your attorney is only paying you lip service on any issue, it may be time to kiss them goodbye at any point in the process, because from beginning to end this should always be about working together. The stakes are just too high for you not to be involved and to make sure your hard-working attorney is a good reflection on who you are. Experienced Offit-Kurman family attorneys Sandra Brooks (a member of The American Academy of Matrimonial Lawyers) and Cheryl Hepfer (listed in Best Lawyers in America) will be upfront with you at the beginning and beside you at the middle and at the end of your case. With constant communication, you can feel certain Sandra and Cheryl will never put your case in jeopardy or put their needs in front of yours.
September 15, 2023
Litigation
Buyer Beware: What Homebuyers Should Know About Latent Defects
With “home buying season” now firmly in the rearview mirror, first-time home buyers and repeat buyers alike are continuing to settle into their new homes. For first-time homebuyers, in particular, the task of purchasing a home can easily and understandably appear to be a daunting one—to say the least. Many first-time homebuyers have genuine fears about the home-buying process, and repeat home buyers may be increasingly untrustworthy after previous bad experiences. All of this, and more, can easily create a stressful endeavor. Yet the commonly known principle of “Buyer Beware” often casts a shadow of doubt over the entire home buying process. The principle of Caveat Emptor or “Buyer Beware,” as it is colloquially known, is often characterized and maligned as a black-and-white doctrine, yet this is not always the case. Buyers often rely heavily on an inspector to provide a “green light” and/or identify faults in the property—but this process will often fail to detect hidden defects. Inspectors can only do so much during an inspection, and all too often, the “smoking gun” may be hidden from view or easily overlooked. If an inspector does fail to identify a defect or fault in the property, “greenlighting” the buyer to purchase the home, latent or hidden defects often do not become apparent until after moving into the home. The concept of Buyer Beware would lead home buyers to believe that most, if not all, undiscovered defects in their new home is their sole responsibility and that a seller need not remediate any issues. However, that is not always the case. In the event of fraud, a buyer may recover from a seller when the seller actively hid defects in the property or performed deceptive acts that induced the buyer to purchase the home. False assurances and misleading statements regarding the condition of plumbing, electrical, or HVAC systems can amount to fraud in the inducement, leaving the seller open to liability from the buyer. Painting over wood rot, covering water damage and mold with new flooring, and other affirmative acts of concealment open a seller up to liability and provide a lifeline to buyers. When a buyer relies on false or misleading statements in the purchase of their home, they may still be able to recover despite a buyer beware principle. In addition to false or misleading statements, a seller who actively conceals material defects in the property in anticipation of sale will open the seller up to liability.
September 14, 2023
Estates and Trusts
Handwritten Wills and the Couch Cushions that Hide Them
No doubt, the basic scenario plays out every day across America. An elder loved one passes, and an adult child or children are left to deal with an estate and no plan in place — or at least no apparent plan. What to do with mom’s comfy chair? How much is that old couch worth? Should we just donate everything to charity? Who decides? The oldest? The one living closest? Do we all get a vote? Before anything gets decided about the couch (or any other furniture, for that matter), I suggest everyone take a breath and consider the recent case of Aretha Franklin‘s four kids… and definitely don’t rush to divvy up everything and especially do not just get rid of the old couch! Nearly five years after the Queen of Soul passed and, no doubt, many tens (more likely hundreds) of thousands in legal fees later, the fate of Aretha Franklin’s estate was decided by a Michigan jury, which determined that a four-page “holographic“ (i.e., handwritten) document in a notebook found stuffed under Aretha‘s couch cushion was her intended last Will. No matter that the four kids had already long since mutually consented and arranged to have an agreeable cousin serve as a third-party neutral to administer the estate. No matter that the lack of a will had meant all four would share everything equally and that they’d come to terms with that. No matter that one of the four separate potential final will documents was several times longer, more detailed, found in a locked cabinet, and notarized! The jury’s findings result in Clarence Franklin getting cut out completely and brother Kecalf, alone, receiving Ms. Franklin’s $1.1 million home and most of her “personality” (i.e., her physical stuff-including jewelry, furs, and numerous luxury cars). Impossible to know for sure what Aretha had intended. In fact, according to a New York Times report, the trial judge overseeing the trial has ruled that portions of one or more of the earlier signed documents might still end up being incorporated into what the jury determined to be the final document. (Note: This can happen in certain circumstances when one deals more completely / thoroughly with the disposition of all that one owns in one document before creating another, which inexplicably makes no specific reference to replacing or substituting for the former document). So, despite having endured nearly five years of legal wrangling and a jury trial publicly airing the family’s “dirty laundry” along with matters preferably kept private, the Franklin kids may yet be forced to endure additional delays as the lawyers face-off on potentially unresolved issues, and Clarence and the other siblings now receiving substantially less than the presumed 25%, are now forced to consider their potential appellate options, as well. Why leave such unnecessary heartache to your loved ones after you’re gone? Consult a legal professional, and have it done correctly—and the way you want it—the first time. And if you have recently lost a loved one – especially if you’ve been led to believe they had an estate plan in place (and doubly especially if the “plan” they told you about appears to differ substantially from the plan the decedent actually left behind (or the lack of a plan altogether), I would urge you again to consider the plight of the Franklins and rethink that couch donation . . . at least until someone’s had a chance to lift the cushions and run their hands through the frame. (Epilogue: True, not-totally-unrelated, anecdote . . . I discovered a $20 bill and a pair of Ray-Ban® sunglasses (sold on the spot for $75) in the back of an abandoned couch acquired during a brief stint co-owning/operating a used furniture/carpet going concern more than 30 years ago. I didn’t have to become an estate and trust litigator to appreciate the potential treasure trove those old cushions might unlock! “What’s a ‘treasure trove?’” you ask . . . and “How does one determine ownership of a treasure trove when discovered?” That’s a whole other topic for another day. For now, happy couch-surfing!)
September 14, 2023
Family Law
Skin-to-Skin Contact Recap
If there’s one worry every new parent shares, that worry might be sleep—or, rather, the lack of it. When the disturbances are unpredictable, the needs incommunicable, and the stress overwhelming, a baby’s crying drowns out everything else. Forget work, chores, quality time, or your own sleep schedule. Getting your baby to doze off can become a full-time job unto itself. Fortunately for anyone toiling away right now, one of the simplest sleep-inducing solutions is also one of the most effective. Plus, it’s an excellent bonding ritual with benefits for both the baby and parent. David G. Allan, editorial director of CNN Health, Wellness and Parenting, calls it the “100 strokes” method: count to 100 through “slow back-and-forth sways” while holding your baby close, or through “100 calm and steady rubs” of the baby’s back. According to Allan, the method not only frequently puts babies to sleep (well before 100), but also has a calming effect on the parent. He writes: “The number 100 became like breaths in meditation; I couldn’t hold complex thoughts on top of counting, so deeper emotions surfaced, specifically love and appreciation for the small person I was holding and touching. I was less likely to get pulled away by superfluous streams of thought and soon began to deeply enjoy these moments of seemingly forced mindful parenting.” When Allan dug deeper, he found out that science supports this method as well. Physical touch between baby and parent encourages the release of chemicals associated with happiness and relief: oxytocin, serotonin, and dopamine. This can confer all sorts of positive health outcomes: “In one study, daily massage therapy was associated with a 47% weight gain in preterm infants. In another, researchers measured the stress response in the brain when subjects anticipated an electric shock and how that response was tempered if their arm was being stroked by a loved one. There’s even some evidence that touch may reduce anxiety and depression among Alzheimer’s patients. By holding and rubbing our children, we are conveying safety and trust, relieving stress and activating our bodies’ vagus nerves, triggering a compassion response. This is what actual bonding with your child looks like.” Read “Give me some skin: A nighttime ritual to bond parent and child.” A lawyer probably can’t help you calm your baby, but if you’re losing sleep over a legal issue, the attorneys of Offit Kurman’s Family Law Practice Group can help. To learn more about our team the services we provide, click here.
September 14, 2023
Estates and Trusts
What’s a Healthcare Proxy and Why Should You Have One?
Originally posted on 12/10/2020, content updated on 09/13/2023 It is vital to have a proper health care directive in place in the event you become sick and cannot independently advise your health care providers of your wishes. In 1991, the New York Health Care Proxy Law established the right for an adult to nominate another person to make medical decisions for her in the event she is unable to effectively communicate her wishes independently. The goals of establishing this standard in New York was to avoid confusion when a medical decision needed to be made for someone who could not do it herself, to identify the person who could communicate those wishes, to ensure the wishes would be carried out, and most importantly, to withdraw treatment when the proxy decides that it would not be something that the patient would want or that continued care is not in the patient’s best interests. How the Health Care Proxy Works The Health Care Proxy document only goes into effect when you are unable to effectively communicate your wishes to your health care providers. The proxy allows for the appointment of two people, referred to in the document as “agents”, in the order in which they are named. The order of the proxies in the document determines the order in which medical personnel will consult with them about decisions that need to be made about your health. Agents are not permitted to act together in New York because joint action could lead to disagreement, which of course undermines the purpose of the document. The medical decisions that an agent might make on your behalf can range from the most basic like the dispensing of antibiotics to the suspension of artificial ventilation which might end your life. The Health Care Proxy also provides instruction regarding organ and tissue donation in the event of your brain death. How to Choose Your Agents Your agent must be 18 years of age and does not have to be someone related to you. While it is true that many choose a family member like a spouse or an adult child for the agent role, there is no requirement that your agent be related to you. In fact, some choose a close friend or trusted advisor to fill the role of an agent so that a family member’s emotion does not factor into a health decision, particularly a decision that could end your life. Others nominate their religious advisor so that treatment is based on their faith’s doctrine to guide the medical decision. Regardless of the individual you choose, it is imperative when considering someone for the role that you nominate a person who will speak for you regarding the type of care that you would choose for yourself, if you could articulate your own wishes: this person should not substitute thier wishes for your wishes. Instead, you should choose an agent who understands your wishes as they relate to any and all health care decisions, including life-saving measures, and who will articulate those wishes to your health care providers. This person should be someone who understands and respects your feelings about living and about dying, and fully comprehends the quality of life that you wish to live. In addition, the person should be comfortable advocating for you with health care providers and dissenting family members alike. How to Communicate Your Wishes The discussions that you have with your agent are so important because this is the information she will rely on to make decisions for you if the need arises in the future. These discussions with your agent often evolve over time. Your feelings about living and dying and the type of care that you may want are oftentimes influenced by age, a life-limiting diagnosis or even someone else’s health crisis that you have witnessed. Verbal discussions had with a proxy are legally sufficient for the agent to make a decision regarding any and all of your medical care, but many individuals take it a step further and also put a Living Will in place to illustrate certain wishes in writing. In short, Living Wills are documents that explain your thoughts about medical care and heroic measures. Often Living Wills go into detail about “heroic measures” to sustain your life including artificial nutrition, hydration, and ventilation. It is important to note that Living Wills are not substitutes for Health Care Proxies in New York and should only be used to supplement information provided to the agent. Who Should Have a Copy It is necessary that your agent not only know that she was appointed by you, but that she also has a copy of the document itself. With the prevalent use of cellphones, it is commonly recommended that your agent take a photo of the Health Care Proxy under which she is nominated so that it is readily accessible in any emergent medical situation. You should also provide copies of your Health Care Proxy to any of your treating physicians for their records, in addition. Finally, it should be noted that, even if after reading this article, you never get around to completing a Health Care Proxy, all is not lost. New York State passed the Family Health Care Decisions Act (“FHCDA”) in 2010 that gives guidance on what to do if someone does not have a Health Care Proxy in place. The FHCDA allows for family members to act as your “surrogate” and make health care decisions for you, including decisions to withdraw life-sustaining treatment. However, you are not able to choose which family member will speak for you, so it is not a sufficient substitute for a Health Care Proxy.
September 13, 2023
Family Law
Understanding the Necessity of a Pre-Nup
Originally posted on 5/21/2018, no content changes In Pennsylvania, pre-nuptial agreements meeting the statutory requirements are generally enforceable and the best way to provide peace of mind prior to a marriage. The main reasons a pre-nuptial agreement may be necessary include: Protecting existing (pre-marital) assets; Protecting against potential future support obligations (spousal support, alimony pendente lite, and alimony); Protecting business interests, most often family or closely held businesses; Protecting assets for children of a prior relationship and Estate planning. Pre-Marital Assets: Under the Pennsylvania Divorce Code, assets that are owned prior to the marriage and are maintained in separate names, continue to belong to the individual owner in the event of divorce. However, if the value of such an asset were to increase during the course of the marriage, the increase in value would be included in the marital estate and subject to equitable distribution. Protecting against the passive increase in value of pre-marital assets becoming part of the marital estate is one of the main reasons pre-nuptial agreements are recommended. Pre-nuptial agreements can also protect against active increases in value, such as ongoing contributions to a pre-marital 401(k) or payment of a mortgage on a pre-marital home. Protecting against future support obligations: Consideration must be given to whether either party may have any support obligations in the future if the parties were to divorce. With the exception of support for children, parties can agree to contract specific provisions as to spousal support, alimony pendente lite, and alimony, or may choose to specifically negate any such obligation from arising by including certain provisions regarding same in a pre-nuptial agreement. Protecting Business Interests: The division of a business or interest in a business can be an extremely litigious and costly exercise that is often required in any divorce involving a closely held or family business. Business appraisals are almost always necessary, and the obligation of one party to buy out the other party’s interest can be onerous. In cases such as these, pre-nuptial agreements can be used to protect against this kind of litigation almost as an insurance policy as the business interest and many other aspects can be exempted from the marital estate. Protecting assets for children and Estate Planning: These two aspects often go hand-in-hand. Certain assets can be exempted from a marital estate and protected for children from a prior relationship under both a will and a pre-nuptial agreement, which provides additional protection for such assets. For more information on this topic, please contact Megan Smith at msmith@offitkurman.com.
September 12, 2023
Business
M&A Nugget: Dissenters’ Rights
In Maryland, and other states, a stockholder who does not believe that the purchase price to be paid by an acquirer is fair value has the right to object to the sale and receive payment for the fair value of the stock. The basic procedure for a stockholder to invoke that right is to object to the proposed transaction in writing, not vote in favor of the transaction and make a demand for payment of the stock. The target may then notify the stockholder of the price the target is willing to pay for the stock. If that price is not satisfactory to the owner, or the target does not notify the owner, then the owner may ask a court to obtain an appraisal to determine the fair value of the stock. If the court accepts the appraisal or, not accepting the appraisal, determines the fair value of the stock itself, the amount determined shall be entered as a judgment against the target. Although the use of these dissent and appraisal rights is rare, both parties to a sale transaction need to be aware of them, especially if the acquirer intends to purchase 100% of the target’s stock.
September 11, 2023
Estates and Trusts
Estate Planning for Professional Athletes: The Playbook for Success on and off the Field
Professional athletes are no strangers to the limelight, but beyond the enthusiastic cheers of the fans lies the need for careful planning that extends far beyond their playing days. Estate planning can easily be forgotten amid the hustle and bustle of a rigorous training schedule and a busy sports season. In this article, we will delve into the unique considerations that professional athletes should consider when crafting a comprehensive estate plan. The Play: Understand the Game of Estate Planning Estate planning involves more than just the drafting of a Last Will and Testament. A proper estate plan creates an overall strategy to manage the professional athlete’s hard-won assets during their lifetime. A well-drafted plan also ensures a smooth transition of assets to the athlete’s loved ones in the event of an injury or following one’s death. As a professional athlete, income streams, investments, intellectual property, and property ownership are customarily quite complex. Over the course of one’s career, an athlete may move frequently, acquiring assets in different jurisdictions with different laws along the way. They may also experience significant and volatile swings in their financial outlook that necessitate a review of an estate plan more often than most. In addition, due to the dynamic lifestyle of the professional athlete, close relationships may also change rapidly. It is vital that the professional athlete collaborates with tax professionals, financial advisors, and estate planners who have experience in handling the ever-changing and unique planning needs of athletes. The Starting Lineup: Wills and Trusts A Last Will and Testament is certainly one of the cornerstones of an estate plan. Most understand that Wills can assist in outlining how assets are distributed upon death. What many do not know is that Wills can also designate guardians for minor children and appoint a trusted advisor as the executor to carry the terms of a Will. Trusts are an even more powerful tool for athletes. Trusts provide much-needed privacy, minimize taxes, and allow for tailored distribution of assets to beneficiaries over time. The benefits of a Trust are often critical for an athlete, particularly if they have young children or heirs who require financial guidance. The MVPs: Powers of Attorney and Healthcare Directives One of the most challenging hurdles that athletes must face is injuries. More than any client, creating advanced directives is of the utmost importance for professional athletes who may face injury more regularly than others. Designating an agent under a power of attorney ensures that a trusted person nominated by the professional athlete can manage the likely complicated financial affairs in the event of injury or incapacity. Likewise, healthcare directives outline medical preferences and can empower a chosen individual to make medical decisions on behalf of the injured athlete if they cannot do so Game Strategy: Tax The substantial earnings of professional athletes are often subject to high tax rates. Those tax rates vary from state to state and from year to year. Implementing a tax-efficient estate plan can help minimize the tax burden on the professional athlete and their heirs. A properly created estate plan must include strategies like lifetime gifting, charitable giving, and utilizing trusts to preserve a professional athlete’s wealth and legacy. Protecting A Legacy: Intellectual Property Considerations An athlete’s brand, image rights, and related intellectual property assets continue to generate income long after the playing days are over. Including provisions in an athlete’s estate plan that address how these assets are managed and protected is essential. Harnessing this intellectual property involves setting up corporate structures to handle licensing and endorsement deals and ensuring a stream of income for the athlete’s beneficiaries – all of which must be appropriately allocated in an athlete’s estate plan. Team Collaboration: The Agent, the Manager, The Accountant, and the Lawyer Just as winning championships requires teamwork, a successful estate plan relies on effective and regular communication and collaboration between various trusted professionals. A professional athlete’s manager, agent, financial advisor, accountant, and estate planning attorney should work in tandem to ensure that all aspects of a professional athlete’s overall plan align with their goals and protect their interests and their family’s interests for years to come. Revise the Playbook: The Moving Target of an Estate Plan The life of an athlete is dynamic on nearly every level, and their estate plan is no different. Major life events, such as marriages, divorces, birth of children, disability, or even the death of a loved one, require the professional athlete to constantly assess their estate plan playbook. Changes in an athlete’s home state or playing career can immediately impact their financial circumstances, which will accordingly warrant adjustments to their estate plan. Professional athletes must regularly review and update their estate plans to reflect their current situation, location, and aspirations. Professional athletes spend their careers preparing for the “big game” — an estate plan is no different, but it requires a different kind of strategy. It is not just about preserving wealth, fame, and fortune; it’s about securing a legacy, providing for an athlete’s loved ones, and ensuring their hard-earned assets are properly managed. By assembling a winning team of experts and crafting a comprehensive estate plan, professional athletes can confidently stride into the future, both on and off the field. If you are a professional athlete, a loved one, or a sports agent, please contact me so that together, we can ensure that the professional athlete’s legacy and loved ones are secure for years to come.
September 8, 2023
M&A Nuggets
M&A Nugget: Every Word Matters
This Nugget is for those English majors out there. In a purchase agreement, every word matters. The omission of a keyword or the incorrect use of a word can have an adverse impact on the purchaser’s or seller’s rights under the agreement. For example, in describing a list of assets to be acquired, using the word “including” after a delineated list, rather than “including, but not limited to” might have the effect of limiting the assets being acquired. Although logic tells us that “including” has the same meaning as “including, but not limited to,” some courts have held that “including” actually acts to limit the list of items to those listed after the word “including”. Therefore, the additional words “but not limited to” should always be used. As an example of keywords being omitted, consider the indemnification clause in a purchase agreement, by which the seller agrees to indemnify the purchaser for pre-closing operations and breaches of representations and warranties. An indemnification clause may state that the seller indemnifies the purchaser for any loss, damage and “cost and expenses” incurred. Can the purchaser recover its attorneys’ fees under such a clause? The answer is no. The indemnification clause must specifically include “attorneys’ fees and costs of the legal proceeding” as a recoverable item. Last, suppose a seller is asked to subordinate its right to receive payment to the purchaser’s lender. There are different kinds of subordination. Some lenders require “deep” subordination. The addition of the word deep drastically changes the extent to which a seller subordinates its right to payment. So, although the wordsmithing in the purchase agreement is the attorneys’ responsibility, it is important to keep in mind that every word matters.
September 8, 2023
Business
M & A Nuggets: The “KEIP”
The Key Employee Incentive Plan (“KEIP”), has become common as a way to incentivize key employees. The KEIP usually allows key employees to participate in an exit transaction through the grant of a percentage of the net proceeds from the sale of the business. Many transactions are structured with potential post-closing payments through earnouts or other mechanisms. Acquirers do not want or accept responsibility for KEIPs and, therefore, require that the seller maintain responsibility for the KEIP post-closing. During the negotiation process, a significant amount of time is devoted to the KEIP. Instead of leaving it to the acquirer to react to and dictate how the KEIP will be handled, owners of target companies should have a plan developed. The plan will have as its objective achieving the same end result that the acquirer will eventually insist on. Here are the two most common ways KEIPs are dealt with: Termination of the KEIP, with the only surviving provision being the payment of amounts that may be owed to the key employees in the future reducing the seller’s share of net proceeds, and The transfer of any future responsibility under the KEIP to the selling owners. When first developing a KEIP, it is important that the agreements that will memorialize the KEIP allow flexibility to achieve one of the results described above. By proactively dealing with the KEIP and having a plan in place, a target can lessen an acquirer’s concern about the KEIP and save both sides time and resources.
September 7, 2023
Family Law
GPS Surveillance Data in Civil Cases
They show us where we are, get us where we need to go, and prevent us from losing our way. It is hard to imagine modern life without Global Positioning System (GPS) devices. Indeed, many people not only have navigational systems installed in their cars but carry GPS around all day within their phones. As helpful and ubiquitous as the technology is, however, GPS raises complex uncertainties around privacy. Should GPS providers such as Apple and Google be allowed to retain user location data? If so, what kinds of data, and for how long? Can companies share that information? What about law enforcement—can agencies use GPS to track their suspects? Then there are concerns about individuals involved in separations, divorces, and other family law disputes. For instance: What rights does someone have to defend themselves against an ex-spouse using GPS to spy on their movements? Is information that device collects admissible in court? These were precisely the questions facing the United States Supreme Court in United States v. Jones, 565 U.S. 400 (2012), and Carpenter v. United States, 138 S. Ct. 2206 (2018). In the first case, the Supreme Court ruled that a GPS tracing device counts as a “search” under the Fourth Amendment, meaning that data must be collected under a search warrant to be admissible. In the second case, the Supreme Court clarified that the same rules apply to not just GPS data, but all phone data. To learn more, read “Admissibility of GPS Surveillance Data in Civil Cases” at the National Legal Research Group’s Family Law Research Blog. With the emergence of any new technology come new developments in all corners of the law. Family law is no exception. To stay ahead of any legal updates that may affect you and your family, be sure to subscribe to the Offit Kurman blog.
September 7, 2023
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